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Oppenheimer's Parikh: Amazon May Face Rival, Higher Bid for Whole Foods

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Friday, 16 Jun 2017 12:39 PM

It’s a game changer.

There was no shortage of shock and awe on Wall Street after Amazon.com Inc. said Friday it had agreed to purchase Whole Foods Market Inc. The retailer offered $42 a share for the organic-food chain, a roughly 27 percent premium to the price at Thursday’s close.

Whole Foods came under pressure earlier this year to find a buyer after activist investor Jana Partners acquired a stake of more than 8 percent and began pushing for a buyout.

For Amazon, the deal is more about getting a distribution network for groceries, a business where it has been trying to establish a foothold.

Here’s a look at what analysts are saying about the deal:

Wells Fargo and Co., Zachary Fadem:

“We believe a deal makes sense on several fronts, as Whole Foods can leverage Amazon’s considerable size, scale and technology expertise to improve its buying power, logistics capabilities and operating best practices.”

Oppenheimer Holdings Inc., Rupesh Parikh:

“We overall view a takeout value of $42 as undervaluing the company’s prospects and the powerful brand. In a takeout scenario, we estimated a value in the mid-$40’s range, so it appears there is some money being left on the table...At this point, we are raising our price target to $45 as another bid cannot be ruled out even from a defensive measure to protect against the Amazon threat.”

Goldman Sachs Group Inc., Heath Terry:

“Amazon’s entrance in to the grocery market has been multi-pronged to date,
including AmazonFresh, AmazonFresh Pickup as well as efforts across CPG
categories with Dash buttons, Subscribe & Save, and Prime Pantry. The company’s extensive fulfillment network, customer data, and leverage with suppliers position it well to serve this market.”

KeyBanc Capital Markets, Edward Yruma:

“Whole Foods gives Amazon a fleet of attractively located stores, very strong brand, and credibility within food retail. We also add that the overlap between Whole Foods’s affluent customer base and Amazon’s is likely very high. Whole Foods has struggled recently due to competitive pressures in food retailing, and the acquisition by Amazon will give it room to navigate the significant challenges in the space.”

Credit Suisse Group AG, Stephen Ju:

”The knock-on strategic benefit over the longer term should be 1) higher consumer engagement as the frequency of shopping for food and groceries should be greater versus the other verticals, 2) improved consumer selection in the category, 3) likely better bargaining terms with some of its current groceries/fresh produce suppliers, and as an ancillary benefit (while not as meaningful for the near to medium term) a 4) physical store footprint for Amazon-branded merchandise both hardware and softlines.”

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One analyst says higher bids are possible for Whole Foods; Whole Foods stores, brand and customer base called attractive
wall street, amazon, whole, foods
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2017-39-16
Friday, 16 Jun 2017 12:39 PM
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