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Medtronic Swallows Up Mazor Robotics, but What's Eating United Natural Foods?

Motley Fool Staff, The Motley Fool

In this segment from Motley Fool Money, host Chris Hill and senior analysts Jason Moser, Matt Argersinger, and Ron Gross first review the news that Medtronic (NYSE: MDT) has decided to go from major stakeholder in Israeli robotic-surgery upstart Mazor Robotics (NASDAQ: MZOR) to sole owner.

Then, they pivot into our kitchens, where they consider the overall state of United Natural Foods (NASDAQ: UNFI). Some of its issues can be traced to its relatively recent purchase of SUPERVALU, others to Amazon's acquisition of Whole Foods. But the bottom line is that the entire space is getting squeezed on cost.

A full transcript follows the video.

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This video was recorded on Sept. 21 , 2018.

Chris Hill: This week, Medtronic, the medical device giant, got even bigger when it announced the acquisition of Mazor Robotics for $1.6 billion. I'm guessing they got a good price, Matty, because shares of Medtronic were up on this news.

Matt Argersinger: I think they did. I'm a shareholder of Mazor Robotics. I think this is one of the situations where I'm supposed to say this feels bittersweet. But actually, there's nothing sweet about it for me. I was really excited to see Mazor remain a small, independent company and see if they could grow. They're a real innovator in the area of robotic spinal surgery and demonstrating great efficacy in that.

When they made the deal with Medtronic a couple of years ago, they did it for the right reasons. In other words, Medtronic has a massive sales organization. It would give them wider distribution, a lot more traction. But I knew as soon as Mazor had any sort of success, Medtronic was right there to buy them out. They already owned 12% of the shares coming into the deal. Not surprised by the buyout, a little bitter that I'm going to lose my Mazor shares pretty soon.

Jason Moser: Not to be confused with Moser Robotics, which is something I haven't invented yet, but I've got a couple of ideas.

Hill: [laughs] United Natural Foods is the largest supplier to Whole Foods. Fourth quarter results came in lower than expected and shares of United Natural Foods down more than 12% on Friday, Jason.

Moser: It's been a tough year for this company for a couple of reasons. Amazon buying Whole Foods has put them in a little bit of a different position in the value chain. Also, if you go back to July, this merger with SuperValu, in essentially this effort to consolidate on the wholesale side, it makes sense. But I think it really shines a light on how difficult this space is.

With United Natural Foods, that relationship with Whole Foods was very meaningful. It was responsible for about 34% of their yearly revenues. The acquisition from Amazon is going to change that most likely. That relationship ends in 2025. It's not to say that they couldn't perhaps end it sooner. I think that management at United Natural Foods is feeling a little bit of the fire there. That was the impetus behind the SuperValu merger. The SuperValu merger is not going to come cheap. At the end of the day, they are still caught in this massive price squeeze as these grocers compete for the lowest cost.

I don't know that the future really looks bright for these guys, even if they execute this merger flawlessly. It's just a really difficult business, the grocery space. More and more, United Natural Foods seems like they're in that middleman spot.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of AMZN. Jason Moser has no position in any of the stocks mentioned. Matthew Argersinger owns shares of AMZN and Mazor Robotics. The Motley Fool owns shares of and recommends AMZN. The Motley Fool owns shares of Medtronic. The Motley Fool recommends Mazor Robotics. The Motley Fool has a disclosure policy.