Today's stock market
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Turning to individual stocks, Amazon (NASDAQ:AMZN) announced a blockbuster deal to acquire upscale grocery chain Whole Foods Market (NASDAQ:WFM), sending shares of both companies higher. ETFs that hold grocery retail stocks were hit hard by this news, and the Consumer Staples Select Sector SPDR ETF (NYSEMKT:XLP) fell 1.1%. Elsewhere, Nike (NYSE:NKE) stock sank despite the sports apparel specialist's recent announcement of plans designed to reinvigorate growth.
Amazon puts Whole Foods in the shopping cart
This morning, e-commerce giant Amazon announced an agreement to acquire Whole Foods for $42 per share. The $13.7 billion all-cash merger is Amazon's biggest deal ever, and comes at a 27% premium to Thursday's closing share price. Whole Foods Market will continue to operate its stores under its own brand, and founder John Mackey will continue as CEO. The stock closed above the takeout price on rumors that other companies may make competing bids.
"This partnership presents an opportunity to maximize value for Whole Foods Market's shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers," said Mackey in the press release, issued jointly by the two companies.
The deal gives tremendous impetus to two avenues Amazon has been pursuing: brick-and-mortar stores and grocery retailing. Whole Foods' 464 retail stores will give Amazon a physical presence within minutes of millions of consumers and a significant beachhead in a retail industry that accounts for over half a trillion dollars in annual sales. The news caused carnage in shares of the largest grocery chains in the industry, with Kroger, Costco, and Walmart among the biggest losers in the S&P 500 for the day.
For Whole Foods, the deal gets the company out from under the influence of hedge fund Jana Partners, whose attempts to win board seats and gain some measure of control over the company had grown acrimonious. The support that Amazon showed for allowing Whole Foods to operate its brand with the leadership intact, the possibility of Amazon's technology and strong customer loyalty programs coming to the stores, and the internet giant's general willingness to trade off margins for growth undoubtedly proved enticing to the Whole Foods board.
Nike goes local
Yesterday, Nike announced a realignment of the company to create more of a local focus on key markets, as well as a workforce reduction of 2%. Nike will create small, focused organizations in 12 key cities -- New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul, and Milan -- that it says will produce 80% of the company's growth through 2020. It will also simplify its geography structure by reducing reporting segments from six to four, starting in fiscal 2018. Investors were evidently unimpressed, sending the stock lower by 6.5% in the past two days.
The sport apparel specialist hopes that a simpler, more local organization will make the company quicker to respond to shifts in customer tastes. Trevor Edwards, president of the Nike brand, said in the press release, "This new structure aligns all of our teams toward our ultimate goal -- to deliver innovation, at speed, through more direct connections."
Nike's top-line growth has been disappointing to investors recently, and the geographic realignment is part of a strategy to become more innovative, nimble, and connected to customers. The company is also reducing its number of styles by 25% and attempting to cut product-creation cycle times in half. Given the challenging retail environment lately, investors seem to be skeptical of Nike's ambitious plans until they see results.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jim Crumly owns shares of Amazon, COST, and Whole Foods Market. The Motley Fool owns shares of and recommends Amazon, COST, Nike, and Whole Foods Market. The Motley Fool has a disclosure policy.