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Ecommerce giant Amazon to buy Whole Foods grocery chain in blockbuster deal

Merger mania continues:

Amazon said on Friday that it had agreed to buy the upscale grocery chain Whole Foods for $13.4 billion, as the online retailer looks to conquer new territory in the supermarket aisle.

For Amazon, the deal marks an ambitious push into the mammoth grocery business, an industry that in the United States accounts for around $700 to $800 billion in annual sales. Amazon is also amplifying the competition with Walmart, which has been struggling to play catch-up to the online juggernaut.

It’s the biggest acquisition in Amazon’s history.

For Amazon.com Inc., the blockbuster $13.7 billion deal to buy Whole Foods Market Inc. is a giant step toward dominating every part of a consumer’s shopping experience.

Amazon is already in your mailbox, with all of the items you’re purchasing with your Prime membership; your living room, with its Echo device and Prime television services; your library, with its Kindle; and your closet, with Zappos. Now it wants to fill your fridge.

The two companies’ press release touting the deal was relatively short and light on corporate mumbo-jumbo. Phrases like “synergy” were mercifully not used.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO.

“Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” said John Mackey, Whole Foods Market co-founder and CEO.

Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world.

John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.

Completion of the transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

If this deal goes through, Amazon will — almost overnight — become a major player in the brick and mortar retail industry. It already dominates ecommerce.

Now, Amazon is looking to become a hybrid retailer and challenge Walmart for supremacy as the nation’s largest retailer.

Whole Foods has hundreds of locations all over the country. It’s not hard to imagine Amazon installing its lockers inside of each of those locations, or using them to further expand its Amazon Fresh grocery delivery service.

Shares in many of Amazon and Whole Foods’ competitors were down in trading today, as investors contemplated the potential ramifications from the tie-up. Traditional grocers like Safeway and Kroger are particularly vulnerable to an aggressive play by Amazon into the grocery sector.

Whole Foods currently has an exclusive delivery arrangement with Instacart which isn’t due to expire for several more years. It’s unclear how that arrangement will be affected by the Amazon acquisition should it go through. Instacart’s relationship with Whole Foods reportedly drives less than 10% of its revenue.

The investment banks that advised Amazon and Whole Foods on this deal (Goldman Sachs, Evercore Partners) will surely make tidy sums if it is approved.

Whether shareholders and shoppers will benefit is another matter. Merger mania has produced plenty of deals over the last few decades that haven’t unlocked any value for corporate shareholders or strengthened the U.S. economy.

Whole Foods may offer fewer jobs going forward if Amazon takes it over.

Many deals don’t receive an appropriate level of regulatory scrutiny. We hope that won’t be the case with this proposed acquisition of Whole Foods.