In a SEC filing released today, Whole Foods (WFM) detailed just how the buyout offer came about from Amazon (AMZN). Let’s take a look at the facts and then try to read between the lines of what was disclosed.
If nothing at all, this document lays out the real power that private equity has risen to in this market. If not for JANA Partners, it is clear that this would not have happened.
April 10, 2017
JANA Partners files a 13D with the SEC disclosing that they had acquired 8.8% of WFM common stock and that they intended to engage in active discussions with the company to help maximize shareholder value.
April 17, 2017
WFM hires Evercore Group as its financial advisor.
April 18, 2017
Company X (WFM decided not to disclose all the bidders) approaches Evercore to discuss potential deals including a leveraged buyout or a PIPE (private investment in public equity).
April 21, 2017
Evercore had previously mentioned to WFM that Amazon was discussed in previous media reports as being interested in the company, and then calls Jap Carney, the SVP of Corporate Affairs at AMZN to arrange for a meeting to discuss a potential strategic transaction.
April 24, 2017
The Board discusses a letter received from Company X and a meeting to be held two days later with JANA.
On that same day, AMZN states that it would be interested in discussing a deal.
April 26, 2017
JANA meets with the board, demands changes to the board of directors and make an announcement that they were looking at strategic alternatives.
WFM board expresses willingness to interview potential board candidates as part of its own “board refreshment process.”
April 27, 2017
AMZN and WFM enter into a non-disclosure agreement.
April 30, 2017
WFM travels to AMZN to talk about a deal.
May 8, 2017
WFM sends a proposal to JANA Partners that includes a “standstill” period of 18 months.
WFM receives and email from another suitor, Company Y.
May 9, 2017
JANA rejects the initial proposal if there is a standstill clause.
May 16, 2017
Company X meets with WFM and suggests that they believe a deal can be reached at between $35-$40. WFM notes that the structure was not specified but that it would require substantial borrowing and it would not be all cash (it would include a stock component).
May 18, 2017
Company Y suggests a commercial relationship, such as a supply agreement, but did not discuss any potential merger or acquisition.
May 23, 2017
AMZN offers $41
May 25, 2017
AMZN bankers from Goldman Sachs state that the company is very sensitive in regards to confidentiality and they were not willing to engage in a multiparty sale process.
May 30, 2017
WFM board counters at $45.
June 1, 2017
Goldman Sachs investment bankers stated that AMZN was considering whether or not to even respond to the counter as they were looking at other opportunities. They could raise their offer to $42 but that was the best and final offer.
On that same day, WFM accepts the offer of $42.
June 16, 2017
The AMZN deal for WFM is announced.
Whole Foods Market, Inc. Price and Consensus
Whole Foods Market, Inc. Price and Consensus | Whole Foods Market, Inc. Quote
Company X and Company Y were in the mix, but were they really? Company X talked about a leveraged buyout and a deal that included a lot of debt. This leads me to believe that this was a private equity player, but the part about having a deal composition that includes stock throws a wrench in that idea.
Company Y never really offered anything besides a supplier agreement, so their interest was more self-serving that than anything else. I would call it more of a fishing expedition than anything else. Just the fact that there was another interested party could potentially increase the price of any deal as it would strengthen the bargaining position of the WFM board.
JANA Partners made this all happen with a stake of only 8.8% and a firm and immediate “no” when a standstill clause was discussed. This suggests that JANA was ready to increase their stake and force a move via a proxy fight as it wanted to get a strong voice on the board of directors.
Amazon was not willing to enter into a competitive bidding process. They were firm on their offer and it was a take it or leave it style deal.
After The Announcement
The price of WFM stock traded as high as $43.84 following the deal as word of other potential bidders surfaced. No other bid came and one has to think that it didn’t because of the basic fear that AMZN put in the market by making the deal. The share prices for other competitors sank in the wake of the announcement and while the idea of “making them pay more” was talked about in the press, no real action was taken.
This shows a certain respect for AMZN and its power to get deals done. At the end of the day, competitors would rather take a back seat than upset the strongest retailer on the planet.
Follow Brian Bolan on Twitter: @BBolan1
Don’t Forget Kroger
The diary that WFM published today is complementary to what we already know about the broader market. On the morning of June 15, Kroger (KR) reported earnings and lowered guidance sending shares down nearly 19%.
One would think a major deal like the AMZN for WFM would come on a Monday, but with the bad quarter from a competitor, AMZN went for the throat. Announcing the deal on a Friday was clearly a signal to the world that said things were bad in the grocery world and they are about to get worse.
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