Deals and IPOs

Deal drama: Amazon raised bid, beat out 6 other suitors to land Whole Foods, filing reveals

Key Points
  • Whole Foods was also approached by two unidentified companies and four private equity firms looking to explore opportunities.
  • The grocery chain tried to get Amazon to raise its bid as high as $45 a share.
  • Amazon then told Whole Foods $42 was its "best and final offer."
Deal drama: Amazon raised bid, beat out 6 other suitors to land Whole Foods, filing reveals
Deal drama: Amazon raised bid, beat out 6 other suitors to land Whole Foods, filing reveals

Amazon's offer to acquire Whole Foods for $42 per share wasn't Jeff Bezos' first, according to new details revealed in a proxy statement filed by the grocery chain with the Securities and Exchange Commission on Friday.

In fact, it was more than what Amazon wanted to pay.

Whole Foods said it received an initial written offer on May 23 from Amazon to acquire the supermarket company for $41 per share. Amazon told Whole Foods its offer represented "compelling" value for shareholders, and it viewed this proposed transaction as a "strategic investment" for

The grocery chain, meanwhile, was already fielding other potential deals, including approaches by four private equity firms and two unnamed companies identified only as "Company X" and "Company Y."

U.S. supermarket chain Albertsons is reportedly Company X, a source familiar with the matter told Reuters later on Friday. Albertsons declined to comment.

Back to dealing with Amazon, Whole Foods wasn't satisfied with the internet giant's initial offer.

After discussing potential responses to Amazon at a board meeting on May 30, Whole Foods directors decided to make a counterproposal at a higher price — $45 per share. This offer was communicated later that day to Goldman Sachs, which was acting as Amazon's financial advisor. The bankers didn't like it.

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"The Goldman Sachs representatives expressed their disappointment at the price specified in [Whole Foods'] counterproposal as they had previously informed ... that believed that it had made a very strong bid," according to the chain of events described in Friday's SEC filing.

Then there was a bit of brinksmanship. Goldman Sachs, acting as Amazon's go-between, told Whole Foods the e-commerce giant was "considering other opportunities instead of acquiring" Whole Foods and was debating whether or not to respond to their counterproposal at all.

Nonetheless, "as a last stretch," Amazon was willing to offer Whole Foods $42 per share, the proxy statement revealed. This was Amazon's "best and final offer."

Since the announcement of the Amazon-Whole Foods deal on June 16, shares of Whole Foods have trimmed back their initial gains, falling for the first time Wednesday below Amazon's $42 bid price.

Whole Foods' stock surged past Amazon's offer price almost immediately after the deal was announced because investors speculated that a sweeter offer would be made. In recent weeks, the gap between Whole Foods' stock price and Amazon's offer has narrowed, with a rival bid yet to surface.

Friday's filing revealed that Amazon wasn't the first to talk to Whole Foods. On April 18, the board received a letter from Company X, an "industry participant," asking if it would like to explore strategic opportunities. Then, in early May, it was approached by a second company.

In between, and around the time it had begun to talk to Amazon, Whole Foods received inquiries from four private equity firms.

The filing also reveals that it was Whole Foods that approached Amazon, after a board member, an executive, and an outside consultant discussed a news report that Amazon might have been interested in a deal. The consultant put in a call to Amazon and eventually set up an exploratory meeting.

A week before Amazon sent its first written offer, Whole Foods said it arranged a meeting with Company X, and representatives from both parties met in person two days later. At that meeting, Company X suggested a merger of equals that would potentially be valued around $35 to $40 a share.

Meeting on May 30 to discuss their options, Whole Foods directors were told by their financial advisors at Evercore that Amazon's price likely exceeded what a private equity buyer could pay.

By June 1, Whole Foods said it was "willing to move forward to negotiate" a deal with Amazon at the $42-per-share price tag.

Whole Foods said its company's board unanimously recommends that shareholders vote "for" the proposal to approve a deal with Amazon, according to Friday's filing with the SEC.

"The Whole Foods Market board of directors concluded that entering into the merger agreement with was more favorable to Whole Foods Market shareholders than the other alternatives reasonably available," Whole Foods wrote.

The board also assessed Whole Foods' "competitive position and historical and projected financial performance," also considering the "nature of the grocery industry and potential changes and developments in that industry, including the growing and intensifying challenges faced by industry participants and the attendant risks attributable to continuing as an independent public company."

A separate SEC filing from Whole Foods a few weeks ago revealed how CEO John Mackey personally felt about the deal with Amazon panning out.

Mackey told a room full of excited employees at a town hall meeting about his first 2½ hour meeting with Amazon — what he calls a "blind date" — and called the grocer's deal with the e-commerce giant a "historical moment."

"Mutual friends set us up on a blind date," he said about flying out to Seattle a little over a month ago. "It was truly love at first sight."

Mackey told employees that his company and Amazon are "engaged," like a couple, but still waiting until their transaction gets regulatory approval. The $13.7 billion deal is expected to be completed in the second half of 2017.

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