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.