UPDATE: Amazon to acquire Whole Foods in $13.7B deal

Amazon.com Inc. plans to acquire Whole Foods Market Inc. for $13.7 billion, a bombshell of a deal that catapults the e-commerce giant into the supermarket business with hundreds of stores across the United States.

Amazon announced Friday that it agreed to pay $42 a share in cash for the organic-food chain, including debt, a roughly 27 percent premium to the stock price at Thursday’s close. John Mackey, Whole Foods’ outspoken co-founder, will continue to run the business—providing a lifeline to the embattled executive after a fight with activist investor Jana Partners.

Whole Foods has four stores in Indiana, including locations at 1300 E. 86th St. in Indianapolis and 14598 Clay Terrace Blvd. in Carmel. The other state locations are in Mishawaka and Schererville.

The grocer is expected to open another local store later this year on the ground floor of the 360 Market Tower apartment project on the northeast corner of Alabama and Market streets, setting up a potential food fight among grocers in the downtown market.

The deal sends a shockwave across both the online and brick-and-mortar industries, uniting two brands that weren’t seen as obvious partners. But Whole Foods came under pressure to find a buyer this year after Jana acquired a more than 8 percent stake and began pushing for a buyout. Jana’s move irked Mackey, who has referred to Whole Foods as his “baby.” By enlisting Amazon, he gets to keep his job as CEO of the grocery chain.

Whole Foods shares jumped 27 percent, to $41.99 each, Friday morning, bringing them close to the transaction price. Amazon shares gained 3.2 percent, to $995.

Shares in other grocery stores and retailers plunged after Friday morning's announcement. Kroger's stock dropped 14 percent early Friday, while Target sank 12 percent and United Natural Foods sank 20 percent.

Five-minute delivery?

For Amazon, the deal is more about getting a distribution network for groceries, said Michael Pachter, an analyst at Wedbush Securities Inc. It has spent years trying to break into delivering groceries, but hasn’t been as successful as in other categories.

Amazon previously contemplated a takeover of Whole Foods last fall, but it didn’t pursue a deal, a person with knowledge of the situation has said. The e-commerce company revisited the idea after Jana stepped in.

“Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage,” Pachter said. “I assume the physical presence gives them the ability to distribute other products more locally. So theoretically you could get 5-minute delivery.”

The transaction also may help Amazon sideline Instacart Inc., a startup that has delivered grocery orders from Whole Foods stores in more than 20 states and Washington, D.C.

Previous deals

Amazon’s biggest acquisition announced to date came in 2014, when it agreed to buy video-game service Twitch Interactive Inc. for $970 million in cash, according to data compiled by Bloomberg. The Seattle-based company had about $21.5 billion of cash and equivalents at the end of March, the data show.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Amazon Chief Executive Officer Jeff Bezos said in a statement.

The takeover is slated to be completed in the second half of the year, with Whole Foods’ headquarters remaining in Austin, Texas.

Jana had called for Whole Foods to overhaul its operations and brought in retail and food experts to help foster a turnaround. In an interview with Texas Monthly that ran earlier this week, Mackey chafed at Jana’s campaign.

He referred to Jana as “greedy bastards” who were only interested in profiting from a forced sale of Whole Foods.

“These people, they just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist that,” Mackey said in the interview. “That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if they want to take it over.”

Whole Foods, founded in 1978, has struggled to differentiate itself as competitors also now offer a plethora of fresh and organic foods, and has said customers may be choosing "good enough" alternatives closer to home. In addition to other natural and organic grocers, it has cited pressure from restaurant chains, meal-delivery companies and traditional supermarkets such as Kroger.