Whole Foods Market, Inc. (NASDAQ: WFM) stock soared Friday after news broke that the organic grocer would be acquired by Amazon.com (NASDAQ:AMZN) for $42 per share, or $13.7 billion.
Trading on Whole Foods stock was briefly suspended Friday morning, but when it continued, Whole Foods rocketed up to the buyout price. As of 11:12 a.m. EDT, the stock was trading at $42, or 27% above Thursday's closing price. Amazon investors also cheered the deal, sending shares of the e-commerce giant up 2.8%, while the broader food retail index was down several points.
Rumors of a deal between Amazon and Whole Foods had previously circulated. Amazon considered making an offer for the organic grocer last fall. Once activist investors Jana Partners took a stake in Whole Foods earlier this year with an eye on a sale, the wheels for such a deal were apparently set in motion, leading to Friday's development. Still, Wall Street was taken aback by the news as it's the biggest mergers and acquisitions deal ever for a grocery retailer, and Amazon's biggest acquisition in its history.
In a press release announcing the deal, Amazon CEO Jeff Bezos said, "Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they're doing an amazing job and we want that to continue." John Mackey, Whole Foods CEO, commented, "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."
Mackey will remain as CEO of Whole Foods and the chain will continue to operate its stores under its own brand. The deal is expected to close in the second half of the year, pending regulatory and shareholder approval. Based on the stock movements, both companies' investors seem delighted with the deal.
It's unclear what plans Amazon has for its new shiny toy, but the e-commerce giant has been angling to break into the grocery industry for a decade. More recently, it's stepped up those efforts by expanding its Amazon Fresh delivery program, launching Amazon Fresh Pickup, and testing its cashierless Amazon Go store.
The e-commerce giant will likely use Whole Foods for a wide range of tech and delivery experiments, and could eventually implement the technology behind Amazon Go into Whole Foods stores.
Food retailer stocks were down sharply in response to the news as Wal-Mart fell more than 5% and Kroger and Target were both off double digits as the market clearly fears the power of such a merger.
Still, Whole Foods has struggled lately with comparable sales down seven straight quarters, and groceries have been one of the few areas that Amazon has been unable to master. The tie-up certainly represents a threat, but the $800 billion American grocery industry is more stable than the market seems to believe.
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.