Market Overview

Speculating Grocer Consolidation Amid Amazon–Whole Foods Deal

Speculating Grocer Consolidation Amid Amazon–Whole Foods Deal, Inc. (NASDAQ: AMZN)'s $13.7 billion acquisition of organic grocer chain Whole Foods Market, Inc. (NASDAQ: WFM), if approved, has the potential to drastically change the dynamics of not only Amazon's business but the entire grocery sector.

Within a few hours of the deal announcement, some of Wall Street's biggest analysts are already out with their initial thoughts.

SunTrust: Counter Bid Is Possible

SunTrust Robinson Humphrey's David Magee commented in a brief research report that Amazon's offer implies a an EV/EBITDA multiple of around 10.5x. This multiple is only slightly higher to an average take-out multiple of 9.9x in the retail sector dating back 11 years.

As such, it wouldn't come as a "shock" to the analyst if a counter bid by a large grocery chain would be presented.

Meanwhile, Amazon has been slowly entering the grocery space through various trials and initiatives but a full-scale acquisition of an established grocery chain like Whole Foods allows the online commerce to "quickly skate to where the puck is headed."

Also, it wouldn't come as a surprise if Sprouts Farmers Market Inc (NASDAQ: SFM) would be a potential acquisition target, Magee added.


Oppenheimer Also Sees Potential Bidding War

Analysts at Oppenheimer also considers a $42 acquisition price target as undervaluing Whole Foods' prospects and strong brands.

In a brief report the analysts emphasized that they had modeled a take-out of Whole Foods to occur in the mid-$40s range, so "it appears there is some money being left on the table." As such, another bid at this point shouldn't be ruled out and could come from a "defensive measure to protect against the Amazon threat."

Moves In The Space

At time of publication:

  • Amazon was up 3.01 percent at $993.20.
  • Grocer peer Kroger Co (NYSE: KR) was down 12.55 percent at $21.47.
  • Sprouts was down 6.76 percent at $20.90.
  • Grocer peer Village Super Market, Inc. (NASDAQ: VLGEA) was down 3.99 percent at $24.04.
  • Grocer peer Weis Markets, Inc. (NYSE: WMK) was down 5.3 percent at $48.22.
  • Whole Foods was up 27.07 percent at $42.01.

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