Amazon acquiring Whole Foods in a $13.7 billion deal: Stock prices and what the deal means for you

Amazon acquiring Whole Foods in a $13.7 billion deal: Stock prices and what the deal means for you
Whole Foods is being acquired by Amazon.
Source: Joe Raedle/Getty Images
Whole Foods is being acquired by Amazon.
Source: Joe Raedle/Getty Images

Billionaire CEO Jeff Bezos' online retail company Amazon has announced the latest step in its push to become a one-stop shop for all your consumer purchases: The brand announced Friday in a press release that it would be acquiring Whole Foods Market in a $13.7 billion deal.

The acquisition is still pending approval from regulators and Whole Foods' shareholders, but the company intends to have the deal wrapped by the second half of 2017. Amazon's shareholders seem enthused by the news, as the stock has bumped up about 3% since the market opened, per Google Finance. Trading on Whole Foods stock was first halted, then the stock price rose more than 27% on the news once trading resumed, up to near the $42 per share price set by the deal — a premium above Thursday's close of $33.

That fast pop in Whole Food's stock price could mean that if the deal goes through, Amazon will be getting an even better deal — with Bezos essentially getting the company for free, as CNBC points out.

Amazon has been trying to get into the grocery business for a long time, having launched AmazonFresh back in 2013, and having released in December a video showing a prototype brick and mortar grocery called Amazon Go that lets shoppers skip waiting in line to check out by just using an app. It's yet unclear whether Whole Foods will be folded into AmazonFresh or combined with Amazon Go in some way, or if the two companies will continue to run independently.

In general, will the deal between Whole Foods and Amazon be a good change for consumers, who increasingly value convenience when grocery shopping?

Bankrate senior economic analyst Mark Hamrick says yes — particularly because of Amazon's commitment to low prices: "This will be a good deal for consumers, including those who might not have been doing business with Whole Foods in the past, either because of its positioning in the organic branding space or because prices have been seen as high," he wrote in an email. "Amazon can be expected to work to deliver better value to grocery customers, both online and within the brick-and-mortar space."

But consolidation — when mergers or acquisitions narrow the number of companies competing in an industry — can also mean fewer choices, and thus potentially higher prices for shoppers. The major concern for consumers is whether or not Amazon will continue to offer low prices if the online retail and grocery industry consolidates much further. Matt Stoller, a researcher who studies monopolies, shared that sentiment on Twitter, saying Bezos was "coming for everything." Ryan Cooper of the Week also called Amazon "a monopoly play."

Time will tell. A representative from Amazon declined to comment beyond what was printed in the company's press release.

It's easy to see why Bezos sees grocery stores as a major feather in his cap. The typical American visits the grocery store about twice a week on average, although the figure varies slightly from year to year. Taken together, food takes up a full 10% of the typical household budget, according to Bureau of Labor Statistics data. That's more than people spend on anything except for big expenses like housing, transportation, utilities, and taxes.

Justin Sink of Bloomberg echoed in a tweet the sentiment about how much power Amazon would now have — noting that between Amazon and Whole Foods, "literally every dollar" he spends will now be going to one of Bezos' many ventures.

Whole Foods has been under pressure from its biggest investors to sell the business for some time — and the announcement of the deal ostensibly sheds light on a quote Whole Foods co-founder and CEO John Mackey gave to Texas Monthly in a story published Monday: "These guys just want to sell us, because they think they can make forty or fifty percent in a short period of time," Mackey said of his investors. "They’re greedy bastards."

But no one is sweating the deal more than Whole Foods' many competitors — the grocery business is a tough one, with razor-thin profit margins between 1% to 2%, and it's likely going to get even more competitive than it already is.

Kroger, the largest grocery store chain in the country, announced in its earnings report Thursday a decline in same-store sales, a key metric for the industry. Share prices initially fell nearly 20% on the news, before falling again on Friday morning after Amazon's announcement. Shares for many of the major grocers were all down on the news, as MarketWatch tweeted.

Indeed, this deal is a power move in more ways than one for Amazon, which now gains access to the prime real estate locations Whole Foods occupies, as Wall Street Journal financial editor Dennis K. Berman pointed out on Twitter.

Though it was a publicly traded company for more than a decade before beginning to turn a profit, Amazon's growth has been substantial to say the least. As Re/Code notes in a story about its 20-year history as a publicly traded company, Amazon took about 18 years to grow as large as Walmart, but only two years beyond that for it become twice as large.

Amazon now has many businesses, including a growing hardware business that makes products like the Echo, and a cloud-computing business — Amazon Web Services — that is an anchor of the company's profits.

Notably, Amazon recently closed a job listing on LinkedIn for an economist role specializing in competition. The tasks required include helping "advise Amazon leadership on competition and policy issues; provide expert analysis and insights to improve Amazon’s understanding of emerging topics in competition enforcement and policy; help educate regulators and policy makers about the fundamentally pro-competitive focus of Amazon's businesses; and work closely with Amazon’s chief economist and senior management to shape and implement economic research agendas."

Source: LinkedIn

Finally, the joining of companies also is notable for the media connections involved, as New York Times reporter Sydney Ember pointed out on Twitter — linking Washington Post owner Bezos with Whole Foods chairwoman Gabrielle Sulzberger, part of the family publishing the New York Times.

June 16, 2017, 12:50 a.m. Eastern: This story has been updated.

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