Whole Foods deal tough to beat, sector advisors say - MergerMarket
Amazon’s [NASDAQ:AMZN] offer for Whole Foods Market [NASDAQ:WFM] may have boxed out rival bidders, sector advisors and a former Whole Foods shareholder said.
The e-commerce juggernaut struck a surprise deal last month to acquire the Austin, Texas-based organic grocery chain for USD 42 per share in cash or USD 13.7bn. Whole Foods has largely traded through the bid since the 16 June announcement. The company's shares closed at USD 42 Friday afternoon after trading up to USD 42.19 earlier in the day.
The bid values the company at 10.6x TTM EBITDA, above EBITDA multiples for past grocery transactions, according to a preliminary proxy filed on Friday. Smaller and faster growing organic grocer Sprouts Farms Market [NASDAQ:SFM], though, trades at around 12.5x TTM EBITDA.
Whole Foods announced the Amazon deal a day after industry leader Kroger [NYSE:KR] announced disappointing results that sent its stock and the rest of the grocery store sector plunging.
Russ Piazza, a fund manager at Front Street Capital, said he considered the offer fair given current industry dynamics. If Whole Foods had outperformed other grocers, the bid could be considered light, said Piazza, but he said he still considered USD 42 a “decent price.”
Front Street started buying Whole Foods stock in 2007 and elected to sell once Whole Foods started trading through the Amazon.com offer price in the wake of the deal announcement, Piazza said. He discounted the chances of a rival bid given the strong cultural fits between the companies.
Neuberger Berman, a large Whole Foods investor that urged the company to explore a sale in April following a similar public push by activist Jana Partners, told media outlets in the aftermath of the deal that Amazon’s offer was not a “big check” and that a rival bidder could emerge.
“Deals like this bring a sense of urgency to strategic conversations that exist inside board rooms,” Charles Kantor, a portfolio manager at Neuberger Berman, told this news service in June. “Fear and greed create the lubricants necessary to spur deal making,” he added, which could create a “strategic imperative” for other firms to consider going after Whole Foods and similar firms.
Sector advisors said they did not see an interloper emerging to take on Amazon. Rival suitors would face antitrust risk and would be pursuing Whole Foods at a time when its premium and organic offerings have become easier to replicate, one of the sector advisors said.
A second sector advisor agreed that Amazon offers a higher level of speed and certainty in terms of antitrust review, which is attractive compared to other sector players.
“Other major retailers with established supply chain infrastructures could be attracted, but right now Amazon certainly seems best placed and it has tremendous financial resources,” added Angus Grierson, head of corporate finance at LGB Corporate Finance.
Any challenger would have trouble justifying its offer to its investors, two of the sector advisors said, as Whole Foods has been a rumoured target long enough that interested buyers should have already kicked its tires.
European grocer Ahold Delhaize [AMS:AD], which has been expanding in the US through deals, is an unlikely bidder, the third advisor said. It trades at a lower valuation than Whole Foods, making any deal likely dilutive, and has been focused on integrating past acquisitions, the advisor said.
Amazon, Whole Foods and Ahold did not respond to requests for comment.