Activist investors acquire a stake in Whole Foods. Could a sale be next?
- Jana Partners has acquired an 8.3% stake in Whole Foods and says it plans to reassess numerous aspects of the business, from real estate to the company’s new 365 stores, according to Bloomberg.
- Jana also announced five co-investors, including three who are willing to serve as potential board members for election at next year’s annual shareholder meeting: former Harris Teeter CEO Tad Dickson, former industry analyst Meredith Adler, and former Gap CEO Glenn Murphy.
- Whole Foods has struggled lately to compete with mainstream competitors that have expanded their selection of natural and organic products. The company has endured six quarters of comp-store sales declines, and has revised its growth projections as it focuses more on price promotions and cost-cutting measures.
For months, speculation has been swirling that an activist investor would swoop in and demand big changes of Whole Foods. As numerous analysts have noted, the company has attractive assets but has underperformed as competition has increased in the natural and organic space, making it a ripe target for such a move.
With its newly acquired stake, valued at $721 million, Jana Partners says it wants to reevaluate Whole Foods from top to bottom — analyzing everything from its real estate selection to senior management and store-level execution. The investment firm said it also wants to evaluate the company’s new 365 stores, which Whole Foods is relying on heavily to reverse its current fortunes, as well as its reliance on United Natural Foods Inc. as its main distributor.
The scope of Jana’s investment reflects investors’ frustration with Whole Foods underperformance after years of stellar growth. Recent news of a steep decline in store traffic is just the latest blow against the company. But a quick turnaround may be difficult to achieve, given the retailer’s high store count, pricing image and current investments. The better bet, according to an analyst interviewed by Bloomberg, could be to urge its sale to a competitor.
Who might be interested in Whole Foods? Kroger’s name rises to the top. Ahold Delhaize could be another possibility, or perhaps a private equity firm. This certainly wouldn’t be new territory for Jana, which invested in Safeway prior to its 2014 sale to Albertsons and in Petsmart just before it sold for $8.7 billion.
In the short term, it will be worth following the impact Jana has on Whole Foods. The firm has all but promised a boardroom shakeup, and may push for increased austerity measures. The organic retailer's current growth plan includes the largest cost-saving measures it has ever introduced, but to Jana that might not go far enough.
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