Whole foods, co-founded by John Mackey in 1978, has been struggling lately to earn value for the shareholders and on 16 June 2017, the management of Whole Foods agreed to sell itself to Amazon for $42/share in all cash deal. There are many aspects that are goods and some not so good for this deal. I’ll start with the not so good aspects and end with a discussion on the positive good aspects about this strategic deal.
The main aspect that’s not so good for this deal is the pressure from the active investors. It is obvious from the articles and discussions in the sync sessions that the active investors Jana Partners and Neuberger Berman with 8.8% and 2.4 % shares in the Whole Foods, respectively, are seeking short-term profits. With the excessive pressure from the outset of investment …show more content…
According to our model, referring to the Football_Field Tab, the premium paid (standalone plus synergies) for WFM stock is on the higher side of the offer range suggesting that WFM received a good premium in comparison to various other transactions in the market. This deal definitely results in higher value for the existing shareholders, including the active investors. From Amazon’s perspective, Amazon is a strategic acquirer and not a PE firm, hence from that perspective the premium paid is not abnormal. As suggested in above paragraph, with its disruptive model Amazon will find a way to enhance the shareholders’ value further.
Another good aspect from Amazon’s perspective is its entry into the $675 Billion grocery industry through the acquisition of Whole foods. History has shown us that Amazon’s market dominance typically undermines the competition. With Whole Foods brand value in the organic foods and upscale clientele in conjunction with Amazon’s technology can only benefit the grocery customers; however, this acquisition must worry the competition such as Kroger, Wal-Mart, Target Inc.
The main aspect that’s not so good for this deal is the pressure from the active investors. It is obvious from the articles and discussions in the sync sessions that the active investors Jana Partners and Neuberger Berman with 8.8% and 2.4 % shares in the Whole Foods, respectively, are seeking short-term profits. With the excessive pressure from the outset of investment …show more content…
According to our model, referring to the Football_Field Tab, the premium paid (standalone plus synergies) for WFM stock is on the higher side of the offer range suggesting that WFM received a good premium in comparison to various other transactions in the market. This deal definitely results in higher value for the existing shareholders, including the active investors. From Amazon’s perspective, Amazon is a strategic acquirer and not a PE firm, hence from that perspective the premium paid is not abnormal. As suggested in above paragraph, with its disruptive model Amazon will find a way to enhance the shareholders’ value further.
Another good aspect from Amazon’s perspective is its entry into the $675 Billion grocery industry through the acquisition of Whole foods. History has shown us that Amazon’s market dominance typically undermines the competition. With Whole Foods brand value in the organic foods and upscale clientele in conjunction with Amazon’s technology can only benefit the grocery customers; however, this acquisition must worry the competition such as Kroger, Wal-Mart, Target Inc.