- The dramatic backstory behind the $13.7 billion deal for Amazon to take over Whole Foods Market was revealed on Friday in a proxy filing with the Security and Exchanges Commission.
- According to the filing, days after activist investors Jana Partners took control of 8% of the retailer's stock and agitated for big changes, Whole Foods pursued a meeting with Amazon about the potential of a takeover. But Amazon wasn't the only outside company interested in the natural and organic grocery store. Four private equity firms and another retailer — identified in the filing as "Company X," and identified by Reuters as Albertsons — also were interested in buying out the retailer for $35-$40 per share.
- Amazon initially offered $41 per share, which Whole Foods countered with $45. Amazon responded with a "best and final offer" of $42 per share, as well as a threat to cancel the transaction if it were leaked to the press or if Whole Foods started negotiating with other bidders. Whole Foods' board accepted Amazon's offer, deciding it was the best option both for shareholders and the store's future viability. The deal was announced on June 16.
When Whole Foods CEO John Mackey characterized his first meeting with Amazon as "truly love at first sight" during a 2.5-hour town hall meeting with employees, many wondered if he was oversimplifying the dealmaking process. Friday's filing proves he was, and instead of a storybook romance where Amazon swooped in to save the day, the partnership was built on mutual benefits, thorough analysis of other options and compromise.
But it should be a surprise to no one that Whole Foods had many suitors in the wake of the Jana Partners taking a stake in the company. While it's struggled financially as of late, the natural and organic foods retailer has a large footprint and national reputation for quality and selection. After the Jana Partners investment was announced, it seemed that every day brought rumors of potential takeovers. Analysts linked everyone from Albertsons to Kroger to Target as wanting a stake in the company. Missing from the rumor mill — likely to the satisfaction of Amazon founder and CEO Jeff Bezos — was Amazon.
And while it may be true that Amazon and Whole Foods had, as Mackey put it, "a whirlwind courtship," investors can trust that Whole Foods' leadership had deeper reasons to go into the partnership with Amazon. The SEC proxy gives level-headed business reasons, including the fact that Amazon gave the highest share price, the e-commerce giant offered Whole Foods the best strategic opportunities for the future and that the two entities' plans for the future dovetailed nicely together.
For Amazon's part, the quick and secretive negotiations leading up to the sale should not be a surprise. Amazon is a master of secrecy. After all, when Bezos and the previously family-owned Washington Post were negotiating the newspaper's sale to the tech mogul in 2013, journalists at the newspaper known for its investigative reporting had no idea that a sale was being considered.
In his annual letter to Amazon investors this year, Bezos outlined how he engages in "high-velocity decisionmaking." He wrote that he works with about 70% of the information he'd like to have and that he often uses the phrase "disagree and commit."
"If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, 'Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?' " he wrote. "By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes."
Considering the stock market's reaction to the Whole Foods-Amazon deal — both for grocery and CPG stocks — few would say that this venture qualifies as "a gamble." Once the deal is completed later this year, it will be interesting to see what changes the partnership will bring to the retail industry as a whole.