Amazon.com, Inc. announced on Friday that it will purchase Whole Foods for $13.7 billion. The deal, which is pending regulatory approval, drove stock in Whole Foods Market, Inc. up almost 25 percent on Friday morning. Holders of Wal-Mart Stores Inc stock weren’t so lucky. At time of writing shares in the superstore chain plunged by more than 6 percent.
The deal will involve Amazon paying $42 per share to those holding stock in the up-market grocery chain. The deal came as a massive surprise to most traders, though there have been rumors of Amazon acquisitions on the horizon. On Thursday it was widely reported that the firm was all set to buy Slack. It’s not clear if that deal is still on the cards.
Amazon.com, Inc. jumps into groceries
This deal is all set to catapult Amazon.com, Inc. into the grocery market and give it a massive retail logistics networks across the United States. The firm showed interest in developing a large grocery business in the past. Its delivery arm Amazon Fresh never got the take-up of its other services, however.
The deal is much bigger,in dollar terms, than any other that Amazon.com, Inc. has done in its history. CEO Jeff Bezos may have been forced into the deal, which the web giant reportedly considered last year, by private equity firm Jana Partners. That firm has acquired an interest in Whole Foods and started an activist campaign to try to force it to change its business model.
Mr. Bezos, speaking about the Whole Foods buyout, said “Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy.” The official release said that the deal will likely be completed before the end of the year.
Here’s why Wal-Mart Stores Inc is losing out
The market is expecting Amazon.com, Inc. to be able to out-perforn Wal-Mart Stores Inc on street corners before the Arkansas superstore is able to truly compete online. The Whole Foods purchase means that Jeff Bezos is finally hitting Wal-Mart at part of its core. Right now Wall Street seems to be forecasting razor thin margins at the new firm.
Retail giants already subsist on extraordinarily thin margins, but Amazon.com, Inc. is a very different level of low. The firm still doesn’t really make that much of a profit from its massive retail empire. Instead the firm prefers to push down prices, something it calls “price-investment” in order to keep customers loyal.
If Mr. Bezos chooses to bring the same growth model to brick-and-mortar, a large number of firms, including Wal-Mart Stores Inc are in trouble.
Other retail stocks hit by the Amazon Whole Foods deal included Kroger Co (KRO), down 13 percent,
Sprouts Farmers Market (SFM), down 12 percent, and SUPERVALU (SVU), down 16 percent at time of writing. Amazon has long been the firm to watch for those going long on retail stocks.
Friday, June 16th 2017 appears to be the day that all of that suspicious vigilance may have saved some traders from losing their shirts.