Amazon.com (NASDAQ:AMZN) dropped a bomb on the grocery industry today.
The e-commerce giant known as "the great disruptor" has set its sites on supermarkets with its $13.7 billion acquisition of Whole Foods (NASDAQ:WFM). The move will give Amazon a brick-and-mortar position in the sector for the first time with over 400 stores in some of the nation's most up-and-coming towns and neighborhoods. Whole Foods stores will remain under their own banner, but Amazon will likely use them as delivery hubs and spaces to experiment with new technology.
Grocery stocks across the board were getting pummeled on the news as Wal-Mart fell 5% and Kroger and Target were down as much as double digits. However, there were a few big winners in the deal. Let's take a look at the top three.
1. Jana Partners
The activist hedge fund that took a stake in Whole Foods back in April with plans to push for a sale just cleared a tidy profit. Jana had a 9% stake in Whole Foods and will make a gain of about $400 million on the sale to Amazon as the deal values Whole Foods at $13.4 billion.
Whole Foods CEO, John Mackey, had been feuding with the activist investor over the prospects of a sale. In an interview in the Texas Monthly published just two days before the sale was announced, Mackey called Jana "greedy bastards," protesting their plans for a sale and their bully tactics. He also accused the fund of trying to destroy his and his company's reputation.
Still, when the deal closes Jana comes out with 50% profit after holding the company for just two months. Among Jana's other high-profile holdings are Tiffany, where it has gained board seats, ConAgra Foods, and Sherwin Williams.
2. John Mackey
While Mackey's resistance to being strong-armed into a sale was made clear by the Texas Monthly article, in a lot of ways a sale to Amazon is the best end result for him. Importantly, he remains at the helm of the company and can now work in private to restore his company to its former glory, without the nagging quarterly earnings calls, Wall Street conferences, and shareholder concerns. Whole Foods was ripe for a sale because the stock had been beaten down so much, trading more than 50% down from its 2013 peak.
Mackey, who owned nearly 1 million shares in Whole Foods, will get to cash out his stake for about $42 million as the stock hit its highest point in nearly a year. Considering the circumstances, a sale to a company like Amazon is the best possible outcome. Jana and the rest of the clamoring shareholders are off his back, and he's gained the help of a company that excels at supply chain management, technology, customer relationships, and pricing. That should benefit Whole Foods as it tries to return to sales growth.
Not surprisingly, the acquiring company looks like the biggest winner in today's deal. Amazon shareholders even sent the stock up 3%, meaning the rise in the company's market cap equaled the amount it will spend to acquire Whole Foods.
Amazon has been trying to gain a foothold in the grocery industry for ten years since it launched Amazon Fresh. The company has become more intent on doing so as it sees grocery as the last key remaining holdout in its mission to sell everything to its customers. With the Whole Foods deal, the company acquired a top-notch brand name with more than 400 stores, most of which are in upscale neighborhoods, for a reasonable price.
It's unclear what Amazon will do with Whole Foods stores as they will remain under the Whole Foods brand and under Mackey's guidance, but Amazon will likely use them to expedite delivery and as a testing ground for any number of tech and customer-focused experiments. No matter what, the acquisition can't help but accelerate Amazon's ambitions in food. It's no wonder rival retailers are looking nervous.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Kroger. The Motley Fool owns shares of and recommends Amazon and Whole Foods Market. The Motley Fool has a disclosure policy.