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Amazon seals a deal to buy Whole Foods

Amazon has said it would buy U.S. organic supermarket chain Whole Foods Market for $13.7 billion, marking the internet retailer's largest deal.

By Jon Francis | Published: 16th June 2017 Business

It's the biggest foray into the brick-and-mortar retail sector.

The deal sent shockwaves across the food distribution market, as Whole Foods' peers and supermarket chains grappled with the prospect of having to compete with Amazon's massive buying power and ability to sell goods at a lower cost.

Amazon will gain a footprint of 456 supermarket stores in North America and Britain with the acquisition of Whole Foods, boosting its delivery capacity and allowing it to compete directly with U.S. chains such as Kroger Co and Albertsons LLC.

"Supermarkets will now have to contend with not only competition with each other and non-traditional grocers like Wal-Mart Stores Inc and Target Corp, but with a retailer like Amazon which has the financial capacity to price aggressively," said Mickey Chadha, vice president and senior credit officer at Moody's Investors Service.

"We expect this transaction to further accelerate the consolidation within the supermarket space."

Amazon has agreed to pay $42 per share in cash for Whole Foods, a 27 percent premium on the Austin, Texas-based grocer's closing share price on Thursday. Whole Foods shares were trading just under that level in early trading on Friday, as investors saw negligible regulatory risk to the deal closing.

Excluding debt, the deal is valued at $13.39 billion. It implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index.

Amazon and Whole Foods expect to close the deal during the second half of 2017.