Friday morning Wall Street woke up to the surprising acquisition announcement of Whole Foods by Amazon for $13.7 billion or $42 per share in cash which includes debt.
Last year, Walmart had paid a whopping $3 billion for jet.com in an effort to catch up to Amazon in the online retail business.
According to NPD, Walmart seems to be making progress in its online unit, albeit from a revenue base which is a fraction of Amazon's e-commerce revenues.
So, now with this move, Amazon seems to have struck back at Walmart and the rest of the American grocery companies by stepping into the brick and mortar (B&M) world that has been dominated by Walmart thus far.
For Walmart, who is trying its desperate best to make a dent in Amazon's online dominance, this sudden entry into the B&M world by Amazon in such a big and bold manner has to be setting off alarm bells all over the place in Bentonville.
As of Friday's closing prices, Whole Foods stock ended at $42.89 per share up $9.62 per share or $29.10 per share. Amazon saw its own shares close at $987.71, up $23.54 or 2.4% despite financial media and bubble vision doing its best to put as negative a spin on the deal as possible. (see below).
As far as the other retailers of the grocery type were concerned, Walmart ended down 4.7%, Target was lower by 5%, Costco gave back 7% and Kroger was hit by 9% for a 2 days loss of 26%.
So, what should investors in Amazon and Whole Food expect for Monday and the rest of the coming week?
First, for those investors in Whole Foods, the Amazon takeover offer has to be a nice gift given the current declining state of affairs at Whole Foods. Second, I think that shareholders could get a slightly higher counter offer from one the other grocery chains although eventually, no one will be able to outbid Amazon. However, a higher offer for Whole Foods is certainly a possibility.
Second, expect the bobbleheads on bubble-vision to continue to bad mouth Amazon and trot out as many negative actors they possibly can on why Amazon is not a great investment although in reality, it is an even better investment now with the Whole Foods buyout.
Finally, Amazon longs should also brace for some Street sellsider or some dedicated short "research" firm to possibly come out with a hit piece on the deal given the prevailing negative atmosphere in techland. After all, nothing sells better than negativity. Most importantly, it could allow some totally no-name outfit/analyst to get his/her 15 minutes.
As far as my opinion on the matter, the fact that Amazon increased its market cap by almost the same amount as it offered to pay for Whole Foods, makes total sense to me. In addition, the 440 additional points of distribution gained by Amazon via the takeover makes Amazon a must own going forward.
I will add that were we in a more favorable environment for techland last week, shares of Amazon would have ended up at least 2x what they actually did on Friday.
If not more.
Something to think about.
(Long amzn, long and short amzn options)