Whole Foods shares traded above the $42 price offered by Amazon amid speculation there could be a bidding war for the upscale grocer.
Analysts said other retailers may do anything to keep the retailer out of Jeff Bezos' hands.
Barclays analysts, in a note, said they would not be surprised if a strategic retail buyer tried to steal Whole Foods from Amazon, or at least force the online giant to pay up for the acquisition.
Whole Foods stock closed at $42.68 per share Friday. Barclays analysts said they raised their price target to $48, but they saw an upside price for Whole Foods of as much as $57 per share.
Barclays said bidders could include such retailers as Wal-Mart, Target or Kroger. An industry source, however, said Target is not interested in Whole Foods. Wal-Mart and Kroger were not immediately available for comment. Whole Foods would be required to pay Amazon a $400 million breakup fee if the deal is canceled for another bidder.
"We assigned a 40 percent probability to this scenario," the Barclays analysts said of another bid. "Our downside scenario is $42, which is equal to Amazon's current bid. ... We believe there is little regulatory risk that would prevent an Amazon/Whole Foods deal from being consummated. We assign a 60 percent probability to this scenario."
The Barclays analysts noted that very few entities could outbid Amazon, but "many will do anything to either make this acquisition more costly for [Amazon] or prevent the asset from landing in [Amazon's] lap – because remember – retail strategic bidders would eliminate overhead at [Whole Foods] in the event of an acquisition, Amazon intends to let Whole Foods operate as is," they wrote. The analysts said a strategic buyer could see synergies of up to $600 million.
Oppenheimer analysts also say Amazon may be undervaluing Whole Foods' brand name strategy and its strong retail locations, and that means another bidder — or Amazon —could have to pay more. Oppenheimer analyst Rupesh Parikh raised his price target to $45.
Amazon has said it would pay $42 per share in cash, or $13.7 billion, for the upscale grocery chain, known for its organic food and quirky culture.
"We think mid-$40s is the right price," said Parikh.
"Amazon is a threat and they're a very high-quality asset. I think there could be buyers out there that don't want to see Whole Foods in the hands of Amazon," he said. Parikh said he didn't know whether another buyer would step in or whether Whole Foods had exhausted all options.
But he said store chains like Kroger, itself under pressure, would have a tough time competing with Whole Foods, particularly if Amazon uses its leverage to bring down prices.
The Amazon bid for Whole Foods came together swiftly after Amazon began talking to Whole Foods about a month ago, sources told CNBC. Analysts say the deal was a quick resolution, following the April announcement of activist investor Jana Partners' roughly 9 percent investment in the company.
"I think it's Amazon is getting a distribution center, but really helping the Fresh [food delivery business] in urban markets," Parikh said. Whole Foods has its own delivery business, in partnership with Instacart.
While the companies have not yet held a conference call for analysts, Parikh said Whole Foods' stores could become a ready-made distribution network, and it could help source Amazon's food delivery business.
"The 365 concept at Whole Foods, we think is a home run concept down the road. That's one part that wasn't valued by the market," said Parikh. He said Whole Foods has a strong footprint in urban centers and choice real estate locations, such as Columbus Circle in New York City, that may also not be fully valued.
Cowen analysts say there is a big opportunity for Amazon in the grocery business. In a note, they said the top 10 retailers, including Amazon, control 45 percent of the market. Several hundred grocery chains, convenience stores, dollar stores and mom and pop stores control the majority.
"Based on our forecasts, [Amazon] will likely rank as the 9th largest US Grocery retailer in '17, although by 2021, we expect [Amazon] to be the #3 US Grocery retailer, behind only Walmart and Kroger. We note our Amazon US Grocery forecast of $71BN in '22 is split 65%/35% Consumables/Food & Beverage," the Cowen analysts wrote.
Whole Foods would also benefit from Amazon's technology. "They have been slow on the technology side," Parikh said.
The Whole Foods deal immediately sent grocery chains and other companies that sell food and household products reeling, for fear Amazon can quickly bring its aggressive pricing to a formidable chain of brick-and-mortar locations.