While this deal certainly could be good for AMZN, we believe the market may be ignoring some of Whole Foods Market's off-balance sheet liabilities that make this acquisition more expensive than it appears.
Amazon.com will acquire Whole Foods Market for $13.7 billion, a bombshell of a deal that catapults the e-commerce giant into hundreds of physical stores and fulfills a long-held goal of selling more groceries.
Officials from both the Justice Department and the Federal Trade Commission, the two agencies charged with enforcing antitrust law, have financial ties to the law firms expected to play a major role in managing the deal.
For Amazon, the deal coincides with its expansion offline to brick-and-mortar locations, such as Amazon Go and its bookstores.
The stock prices of large food retail chains, such as Costco, tumbled a bit.
That could in turn spur mergers among large food manufacturers that feel compelled to negotiate with heftier clients. Jennifer Bartashus, an analyst at Bloomberg Intelligence, said that in addition to technology investments, Kroger has a strong base of customers across the USA, including suburban areas outside of the big-city markets where Whole Foods is strongest.
- Amazon made its first attempt at full grocery delivery in 2007 with Amazon Fresh but has been slow to roll out that service.
Analysts generally praised the deal as a smart buy for Amazon, but not everybody was applauding.
"This was a very exciting announcement because I think consumers will be the ones to benefit", said Lindsay Sakraida, director of content marketing at DealNews.
He warned that Amazon already exerts risky influence "over America's markets for books and music, and is fast consolidating control over other key flows of information and ideas".
According to the senior food retailing analyst at CFRA, Joe Agnese, "Once Amazon is a player in the industry, anything can go", and "The big threat is what else they can do". The acquisition was an all-cash transaction in which Amazon bought Whole Foods Market for $42 per share price. For comparison, Wal-Mart (NYSE: WMT) is down 5%, Kroger (NYSE: KR) is down 9.5%, with European retailer Koninklijke Ahold feeling the burn as well, down 8%. That gives Amazon the ability to sense and respond - to market test, benchmark, and improve - all of its internal services to make them extremely flexible, responsive to new needs and able to withstand competitive pressures. But that has changed recently and it posted a profit of $2.3 billion for 2016 on revenues of $94.7 billion.
There's some speculation as to what this acquisition means in the long term.
The whole gain Amazon is looking to pounce at is the potential introduction of online food retailing business; with this move, they are looking to combat the kings in this current industry, Walmart, and Kroger.
That push also will reverberate through the broader industry. From day one, Amazon has focused on dominating every market it enters, even if it has to sacrifice profitability. "The market isn't going away".
Many also say they will always want to do some of their grocery shopping in person to see what they're buying.
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