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Jul 7, 2017

Amazon cornered Whole Foods into sole-bidder status: Filing

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Amazon.com Inc (AMZN.O) told Whole Foods Market Inc (WFM.O) it would not engage in a sale process for the U.S. grocer that involved other bidders, a regulatory filing showed on Friday, shedding new light on the US$13.7 billion acquisition.

The previously undisclosed details on the negotiations show how Amazon used its deep pockets and brand as leverage to convince Whole Foods to accept a sale process that would not result in a bidding war.

Whole Food shares traded above Amazon's US$42-per-share deal price for the first few days after the agreement was announced on June 16, on investor expectations of a higher bid. They have since traded slightly below that price, as such hopes dampened.

The regulatory filing shows that Whole Foods agreed to forgo an auction process after it received expressions of interest from two other companies and four private equity firms.

None of these parties are identified by name. The filing refers to a 'company X,' which proposed a merger of equals that valued Whole Foods at between US$35 and US$40 per share. U.S. supermarket chain owner Albertsons LLC is company X, a source familiar with the matter said. Albertsons did not respond to a request for comment.

Nevertheless, Austin, Texas-based Whole Foods agreed not to pursue this, or solicit any other bids, in part because Amazon was "very sensitive with respect to confidentiality" and did not want to compete in a broader sale process, the filing said.

Whole Foods said in the filing it sought US$45 per share from Amazon but settled for US$42 per share, which the ecommerce giant called its "best and final offer." Amazon had offered US$41 in May, according to the filing.

Amazon had also told Whole Foods it was considering other opportunities in case its final offer was turned down. The filing added that Amazon reserved the right to terminate the talks if there was any leak or rumor of its interest in Whole Foods.

The other company that expressed interest in Whole Foods, referred to in the filing as 'company Y,' had an interest in exploring a commercial relationship, such as a supply arrangement, and did not discuss any merger or acquisition, according to the filing.

Whole Foods' management, under pressure from activist hedge fund Jana Partners LLC to explore a sale of the company, decided not to solicit proposals from the four private equity firms as the price proposed by Amazon likely exceeded the amount a private equity buyer could be expected to pay, according to the filing.