Jana Partners acquires stakes in Blue Apron and Sprouts

Dive Brief:

• Jana Partners, the same activist investor that pushed for the sale of Whole Foods, owns 600,000 shares — or 2% — of Blue Apron as of June 30, reports Bloomberg and the StreetInsider. The meal kit delivery company filed its much publicized IPO just days before on June 28.
• The hedge fund, founded by billionaire Barry Rosenstein, also purchased about 593,000 shares of Sprouts, the high-growth natural and organic grocer, according to Jana’s recent regulatory filing and as reported by Bloomberg.
• Since going public at $10 a share, Blue Apron stocks have tanked, losing nearly half their value. The stock closed at $5.36 on Monday. Sprouts stock, which was selling at a high of around $48 in 2013, closed at $24.24 Monday.

Dive Insight:

The ultra-competitive and quickly evolving grocery space is very attractive to Jana Partners. The potential for merger and acquisition activity, in large part prompted by what analysts call the “Amazon effect,” is creating some bargain stocks in the grocery sector. The likelihood to buy low, shake things up operationally, and ultimately sell high are the kinds of opportunities an activist investor like Jana seeks.

Such was the case with Whole Foods, which saw Jana push the natural and organic retailer to itself up for sale. Jana, which had previously put pressure on Conagra, Safeway and numerous other firms, bought a nearly 9% stake in Whole Foods and issued an ultimatum that summed up the frustrations many investors and industry observers had at the time: Improve your operations, or put the business up for sale.

Whole Foods’ stock went as high as $44 per share after the Amazon offer in anticipation of a bidding war — something Jana and other investors no doubt wanted to see — but that price has since failed to materialize. For Jana, this still amounts to mission accomplished. In addition to netting a tidy profit of $300 million, the sale improves the investor's clout as an industry disrupter. Now, Blue Apron and Sprouts seem to be next on Jana’s hit list.

Many analysts speculated that the Amazon/Whole Foods deal played a hand in hurting Blue Apron’s IPO chances, causing the company to lower its initial asking price right out of the gate. “So it was surprising to see that the same activist hedge fund that had been pushing Whole Foods to sell itself had also taken a stake in meal-kit maker Blue Apron during the second quarter,” reports CNBC. Or maybe it was just part of Jana’s master plan.

If its involvement in the recent happenings at Whole Foods is any indication, chances are we’ll see Jana push for a management team shake-up, operational changes, and perhaps a potential sale for Blue Apron. Co-founder and COO Matt Wadiak already stepped down from the meal kit company last month. The company is closing down one of its plants. And there’s already been speculation about potential buyers that might improve the company's fortunes.

Something like Blue Apron certainly could whet the acquisition appetite for big food and grocery companies, potentially providing a new growth stream. Several food companies, such as Hershey, Conagra and Campbell have entered the space, and many manufacturers are starting to partner with grocers on meal kits. Grocers including Kroger, Publix and even Amazon have introduced their own meal kit offerings in recent months. 

Sprouts has also been on the table as an acquisition candidate, so Jana’s holdings in the organic retailer doesn’t come as much of a surprise there. Sprouts is on track to increase its footprint to nearly 300 stores this year. The retailer could see improved purchasing power and operating efficiency should it sell to a bigger grocery player. Sprouts was reportedly trying to strike a deal with Albertsons earlier this year, but talks stalled. With Jana’s involvement, it is likely Sprouts soon will be shopped around again.