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Online retail giant Amazon is buying Whole Foods in a $13.7bn (£10.7bn) deal that marks its biggest push into traditional retailing yet.

Amazon, which has long eyed the grocery business, will buy the upmarket supermarket for $42 a share.

Investors greeted the deal as game-changing for the industry, sending shares of rival grocers plunging.

But Whole Foods, which had been under pressure, climbed.

Founded in 1978 in Texas, Whole Foods was a pioneer of the move towards natural and organic foods.

It has grown to more than 460 stores in the US, Canada and the UK, and employs about 87,000 people.

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

"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."

'Maximise value'

Whole Foods has faced dissatisfaction from investors, amid falling same-store sales and increased competition. Last month, the company named a new chief financial officer and new board members.

In April, activist investor Jana Partners called the firm's shares undervalued, noting "chronic underperformance".

The price being paid by Amazon marks a 27% premium to the level Whole Foods' shares closed at on Thursday. The $13.7bn value includes assumption of the grocer's debt.

The takeover deal - the biggest in Amazon's history - is expected to be completed in the second half of the year, pending approval by shareholders and anti-trust regulators.

Whole Foods boss John Mackey said: "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."

The Whole Foods brand will continue. Mr Mackey is expected to stay on as chief executive.

'Inherent logic'

Whole Foods stock soared 29% on the news. Amazon shares closed up 2.4%.

Neil Saunders, managing director of GlobalData Retail, said the deal should give the grocer financial breathing room, while making it more competitive online and improving its supply chain logistics.

The takeover also makes Amazon an instant player in the grocery industry, where it has operated at the fringes since launching its food delivery service Amazon Fresh in Seattle in 2007.

Whole Foods and Amazon were staying quiet on Friday about how they might introduce technology to stores, merge their supply chains, or cross-sell Amazon products.

Brendan Witcher, principal analyst at Forrester Research in Boston, said any changes are further down the road.

But that didn't stop instant speculation about what changes might be coming. Possibilities include:

• Lower prices? Amazon has a long history of deferring profits in favour of winning customers with low prices. It could try a similar strategy at Whole Foods, now knocked by some as "Whole Paycheck".

• Techie shopping? Amazon is also interested in how technology can make shopping more efficient. The firm's Alexa robot maintains shopping lists and Amazon is testing a convenience store in Seattle that operates without check-out lines.

"There is an inherent logic in the move which, in our view, brings benefits to both businesses," Mr Saunders wrote.

'Potentially terrifying'

Shares of other supermarket chains took a beating. The industry has already seen significant consolidation, with smaller players wiped out.

Kroger shares fell more than 9 %, Target plunged 5% and Costco Wholesale Corp. dropped about 7%.

Walmart, which announced its own $310m deal to acquire the online clothing company Bonobos, slid 4.7%.

The reaction spread to companies in Europe. Dutch retailer Ahold Delhaize fell nearly 10%.

Mr Saunders said the deal is "potentially terrifying" for other companies.

"Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant," Mr Saunders wrote. "Today that changed."</s>Online juggernaut Amazon is buying Whole Foods in a deal valued at about $13.7 billion, including debt.Amazon.com Inc. will pay $42 per share of Whole Foods Market Inc.The deal is targeted to close in the second half of the year.</s>Amazon.com Inc. said it would buy Whole Foods Market for $13.7 billion as the giant internet retailer makes a deeper push into the grocery space.</s>NEW YORK (AP) — Online juggernaut Amazon is buying Whole Foods in a deal valued at about $13.7 billion, including debt.

Amazon.com Inc. will pay $42 per share of Whole Foods Market Inc.

The deal is targeted to close in the second half of the year.

WHAT OTHERS ARE CLICKING ON:
• WITNESS SAYS HE SAW FIRST SHOT AT UPS CENTER, RAN FOR HIS LIFE’</s>Amazon.com Inc said on Friday it would buy U.S. organic supermarket chain Whole Foods Market Inc for US$13.7 billion, including debt, marking the internet retailer's largest deal and biggest foray into the brick-and-mortar retail sector.

REUTERS: Amazon.com Inc said on Friday it would buy Whole Foods Market Inc for US$13.7 billion, in an embrace of brick-and-mortar stores that could turn the high-end grocer into a mass-market merchant and upend the already struggling U.S. retail industry.

Amazon used aggressive pricing to become an e-commerce retail juggernaut and has recently been experimenting with brick-and-mortar outlets. It will take over a natural and organic grocer pioneer with 456 stores, a mecca for young, high-end shoppers, that has been struggling to rein in prices and integrate technology.

The deal represents a dramatic turn in strategy for Amazon, which has offered food delivery through its Fresh service for a decade but has not made a major dent in the US$700 billion grocery market.

“The ramifications for all of retail are seismic – not just retailers that sell grocery, but for everyone,” Gordon Haskett analyst Chuck Grom said.

For graphic - Whole Foods at a glance - click: http://tmsnrt.rs/2skJDSv

Shares of dozens of supermarkets, food producers, payment processors and shopping malls collectively lost at least US$35 billion in U.S. market value on Friday as the news reverberated across financial markets.

Shares of grocer Kroger Co swooned 9.2 percent, while Wal-Mart Stores Inc fell 4.7 percent, signaling fears that Amazon could broaden Whole Foods' product mix and cut prices.

Amazon's shares rose 2.4 percent to US$987.71, adding US$11 billion to its market capitalization, which in one sense makes the acquisition nearly free for Amazon shareholders.

"Supermarkets will now have to contend with not only competition with each other and non-traditional grocers like Wal-Mart Stores Inc and Target Corp, but with a retailer like Amazon which has the financial capacity to price aggressively," said Mickey Chadha, vice president and senior credit officer at Moody's Investors Service.

Amazon agreed to pay US$42 per share in cash for Whole Foods, a 27 percent premium on the Austin, Texas-based grocer's closing share price on Thursday.

But in a sign that investors believe a rival bid is likely, Whole Foods shares rose above the offer price to close at US$42.68.

NO VALUE IN STATUS QUO

A former grocery expert at Amazon predicted that the chain, nicknamed "Whole Paycheck", would add a selection of discounted food and build out non-grocery areas within stores, particularly for pharmacy and Amazon devices.

"There’s no value in Amazon keeping the status quo at Whole Foods. Whole Foods was losing market share to Kroger," said Brittain Ladd, who until earlier this year was a senior manager working to roll out AmazonFresh globally.

"It’s pharmacy. It’s having the ability to put stores that are similar to Apple stores inside Whole Foods," he said.

Amazon has been looking at shop layouts that could allow traditional in-store purchase, online ordering with on-site pickup, and home delivery, using store warehouse space as a distribution point, Ladd said.

Despite Amazon's reputation for harnessing technology, a prototype store inside its corporate office in Seattle, called Amazon Go, which uses sensors and tech-savvy cameras to detect shoppers' selections and then charge their Amazon accounts, has rolled out more slowly than planned, a person familiar with the matter said.

And while some analysts expect Amazon to bring vast buying power to Whole Foods, Amazon's heft in the food market is far smaller than in other areas, and high demand for organic products gives farmers unusual bargaining power.

Amazon spokesman Drew Herdener said plans do not include reducing jobs as the result of the deal and that the company does not plan to automate Whole Foods cashiers jobs with Amazon Go technology.

WHOLE FOODS WAS UNDER PRESSURE

The deal unfolded after Jeff Bezos, Amazon's chief executive officer, approached Whole Foods CEO John Mackey about a month ago and received an eager response from Mackey, two people familiar with the matter said.

The grocer will continue to operate stores under the Whole Foods Market brand, and Mackey will remain CEO, the companies said.

Whole Foods has posted seven straight quarterly sales declines at established stores and recently overhauled its board of directors in the face of pressure from activist hedge fund Jana Partners LLC.

Jana, which disclosed an 8.3 percent stake in Whole Foods in April and is the company's second biggest shareholder, stands to make roughly US$300 million from the sale to Amazon.

The deal is for US$13.4 billion in cash and the remainder in debt. The acquisition price implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index.

Amazon and Whole Foods expect to close the deal during the second half of 2017.

Amazon, started in Seattle in 1994 by Bezos, a former hedge fund manager, has grown into the world's biggest diversified online retailer, with a market capitalization of nearly US$500 billion. It has expanded from a book seller into a merchant of nearly all consumer products, as well as producing videos.

Both Amazon and Whole Foods cater to younger consumers including millennials as well as the affluent.

"Amazon could bring technology to all Whole Foods locations, or it could absorb Whole Foods into AmazonFresh. Either way, it's good for consumers like myself," said Di Wu, a New York resident in her early 30s who is a member of Amazon's Prime fast-shipping club and who shops at Whole Foods at least twice a week.

"Amazon is known to drive down prices and make the shopping experience more efficient," Wu said.

Goldman Sachs Group Inc advised Amazon on the deal and provided bridge financing. Bank of America Corp also provided financing to Amazon, while Evercore Partners Inc advised Whole Foods.</s>Amazon.com Inc. said on Friday it would buy Whole Foods Market Inc. for $13.7 billion, including debt, instantly transforming the online giant into a major player in the bricks-and-mortar retail sector it has spent years upending.

The acquisition, Amazon's largest by far, gives it a network of more than 460 stores that could serve as beachheads for in-store pickup and its distribution network. It makes Amazon an overnight heavyweight in the all-important grocery business, a major spending segment in which it has struggled to gain a foothold because consumers still largely prefer to shop for food in stores.

In its drive to conquer consumer spending, Amazon has ventured far from its roots as an online book seller. It is developing its own delivery network, and has become a significant video content creator and cloud data service provider.

Its Whole Foods deal is a blow to other retailers, notably Wal-Mart Stores Inc., which derives more than half of its sales from groceries and is struggling to compete online. Traditional grocers such as Kroger Co. and Albertsons Cos. have been battling volatile food prices, lackluster consumer spending and stiffer competition from deep discounters, online merchants and a plethora of other places to purchase food.

Retail stocks including Wal-Mart, Target Corp. and Costco Wholesale Corp. sank. Amazon shares up more than 3% at $996.93 in recent trading, close to its record high.

"Amazon views grocery as one of the most important long-term drivers of growth in its retail segment," writes Colin Sebastian, a Robert W. Baird analyst. The acquisition gives Amazon a scale and density "that otherwise would have taken years to build out."

The deal came together in the past month, just after Whole Foods announced an overhaul of its board of directors, according to people familiar with the deal. The process was influenced by Amazon's own plans to build out a network that would have competed against Whole Foods, the people added.

Amazon will pay $42 a share for Whole Foods, valuing the grocer at a 27% premium to its closing price Thursday. The deal is expected to close in the second half of this year.

Acquiring Whole Foods is a strategic move for Amazon to quickly grab a bigger portion of the estimated $674 billion U.S. market for edible groceries, according to consulting firm Kantar Retail. Until now, Amazon has largely focused its grocery efforts around its Amazon Fresh subscription service, which promises quick food delivery for online orders.

But online grocery shopping is logistically complex, often requiring fast delivery for cold items as part of large orders on less-profitable routes, where stops are spread far apart. And many consumers still prefer to touch, smell and pick out fresh items like fruits and vegetables for themselves.

Online shopping accounted for 2% of grocery sales last year, according to Kantar. Before Amazon's announcement, that share was projected to grow to 3% by 2021. Amazon's food-and-beverage grocery market share was estimated at 1.1% last year, compared with 1.7% for Whole Foods, according to Cowen.

Now it's up to Amazon to combine two distinct corporate cultures and leverage its full-scale entry into bricks-and-mortar retailing. While Amazon has largely remained a hands-off manager of its smaller acquisitions like Zappos.com, it is likely to take a more active role in Whole Foods, according to Macquarie analyst Ben Schachter.

John Mackey will remain chief executive of Whole Foods and the stores will continue to operate under that brand and maintain their suppliers, Amazon said in its release. Jeff Bezos, Amazon's chief executive, said the company is "doing an amazing job and we want that to continue."

Still, Whole Foods has been under fire, struggling as traditional grocers expand the natural and organic offerings that have been Whole Foods' mainstay. Its share price has lost nearly half its value since its 2013 peak, as sales at stores open at least a year have slumped.

Activist hedge fund Jana Partners LLC, the company's second-largest shareholder with a roughly 8.2% stake, and mutual-fund giant Neuberger Berman, which owns 2.7% of the stock, have been pressing Whole Foods to add directors with experience in retail operations, technology, finance and real estate, and to consider a sale.

Still, Citi analysts note that Whole Foods' operating margins, at 5.5%, are higher than Amazon's North American retail business, at 3%.

At first glance, the two retailers don't seem to be an immediate match. Amazon is known as a low-price leader, while Whole Foods is a premium offering. But Whole Foods' network of stores in 42 states could act as potential hubs for grocery delivery and package pickups, playing into Amazon's ambition to handle more of its own logistics and deliveries.

Combining the two companies' market shares in food-and-beverage and consumables would make it the fifth-largest U.S. grocery retailer, according to an analysis by Cowen, behind Wal-Mart, Kroger, Costco and Albertsons/Safeway.

Analysts said they expect Amazon to use its Whole Foods acquisition to promote private-label products, integrate with and grow its artificial-intelligence-powered Echo speakers, boost Prime membership and entice more customers into the fold.

David Benoit and Austen Hufford contributed to this article

Write to Laura Stevens at laura.stevens@wsj.com and Annie Gasparro at annie.gasparro@wsj.com</s>DENVER BUSINESS JOURNAL - Whole Foods Market Inc. is being bought by Amazon.com Inc. in a major shake-up for both the homegrown Austin organic grocery chain and the Seattle-based e-commerce giant.

Both companies have major operations in Colorado. Whole Foods has numerous stores across the state, while Amazon operates a "sortation" warehouse in Aurora, is building a fulfillment center there, and just announced plans for another fulfillment complex in Thornton.

Amazon (Nasdaq: AMZN) has agreed to pay $42 per share in cash for Whole Foods (Nasdaq: WFM), or about $13.7 billion, according to today's announcement.

Whole Foods co-founder John Mackey will remain CEO and the grocery company will remain based in Austin as an Amazon division, per the announcement. Whole Foods will also retain its brand name.</s>(NEW YORK) — Online juggernaut Amazon is buying Whole Foods in a deal valued at about $13.7 billion, a strong move to expand its growing reach into groceries.

Amazon.com Inc. will pay $42 per share for Whole Foods Market Inc., including debt. That marks an 18 percent premium to Whole Foods' closing price on Thursday.

The deal comes a month after Whole Foods announced a board shake-up and cost-cutting plan amid falling sales. The grocery store operator was also under pressure from activist investor Jana Partners.

The grocery chain, known for its organic options, had been facing increased pressure from rivals, including European grocery chain Lidl, which is planning to enter the East Coast market, along with Aldi and Trader Joe's.

Amazon , meanwhile, has been expanding its reach in goods, services, and entertainment.

Whole Foods will keep operating stores under its name and John Mackey will as CEO, with headquarters in Austin, Texas.

The company, founded in 1978, has struggled to differentiate itself as competitors also now offer a plethora of fresh and organic foods, and has said customers may be choosing "good enough" alternatives closer to home. In addition to other natural and organic grocers, it has cited pressure from restaurant chains, meal-delivery companies and traditional supermarkets such as Kroger .

The deal is expected to close in the second half of 2017.</s>SEATTLE -- Amazon said Friday that it would buy Whole Foods Market for $13.7 billion, its biggest acquisition ever and a huge move into the grocery business it's been trying to crack for a decade.

The deal, expected to close in the second half of this year, gives Amazon -- which has been experimenting with various store concepts to establish itself as a food purveyor -- an instant expanse of 460 high-end stores across the U.S., in Canada and in the U.K.

Whole Foods, which made its name retailing organic and fresh products, had been struggling recently with stepped-up competition from Costco Wholesale, Trader Joe's, Aldi and other grocers.

But in the hands of Amazon it would be a potent weapon against archrival Wal-Mart, the world's largest retailer, which dominates the grocery world and has been stepping up its e-commerce. It's also probably the largest untapped opportunity in e-commerce, said Cooper Smith, who tracks Amazon at L2, a research firm.

"If Amazon is going to sustain its current growth rate, it has to get into groceries," Smith said.

Amazon agreed to pay $42 per share for the Austin, Texas-based grocer in an all-cash transaction, a 27 percent premium over Thursday's closing stock price.

The acquisition of Whole Foods would be by far Amazon's biggest purchase. Its previous record-breaker was the $1.2 billion acquisition of online shoe retailer Zappos in 2009.

"This is a game changer," Zachary Fadem, an analyst at Wells Fargo & Co., said. "It's a warning shot for the food retail industry that competition likely heightens on top of an already challenging backdrop."

The deal comes after Amazon spent nearly a decade trying to find a way into the fresh-food delivery business through various endeavors, without much success.

The deal could be "transformative," Moody's lead retail analyst Charlie O'Shea said, "not just for food retail, but for retail in general."

Groceries are already a fiercely competitive business, with low-cost rivals like Aldi putting pressure on traditional supermarket chains and another discounter, Lidl, opening its first U.S. stores just this week. Whole Foods itself had launched an offshoot chain named after its "365" private label brand in a nod to the popularity of no-frills chains.

"Dominant players like Wal-Mart, Kroger, Costco, and Target now have to look over their shoulders at the Amazon train coming down the tracks," O'Shea said.

It's unclear how much integration there will be between Whole Foods' operations and Amazon's tech-driven business. Smith, the L2 consultant, said Amazon's technology and operational efficiency could improve Whole Foods' operating margins. At the same time, Whole Foods' high-income customers are likely members of Amazon's Prime loyalty program, making the acquisition highly complementary for Amazon, he said.

For now, however, it seems not much will change: Whole Foods will keep its brand and John Mackey, its current chief executive, will remain in place. The acquisition would add Whole Foods' 87,000 employees to Amazon's bulging payroll, which as of the end of the first quarter had 351,000 people.

The grocery market, a $750 billion sector in the U.S., is one of the few provinces in the retail world that Amazon hasn't managed to alter.

That's in part because most shoppers prefer buying groceries, and especially fresh foods, in person. The logistics of moving fresh food are also complex.

Amazon introduced AmazonFresh in 2007, a service that for a fee delivers groceries to customers' homes but that has failed to make a wide impact.

More recently the company has built various retail concepts, some with the aim of making people comfortable with the concept of buying food from Amazon and eventually nudging them to move a big part of their grocery shopping online.

Online delivery of groceries so far has been tough for any company to pull off because of customers' concerns about the quality of meat and produce, Wedbush Securities analyst Michael Pachter said. But if customers know that what they are getting is the same as what they'd get at the local store, they are more likely to try it out.

Whole Foods, which will keep operating stores under its name, said in an email to customers that it will maintain the same standards under Amazon, including bans on artificial flavors and colors and antibiotics in hens producing its eggs.

Pachter said that if Amazon gets 20 million members of its Prime loyalty program to pay $15 a month extra for AmazonFresh grocery-delivery service, that's 20 million people not going to traditional supermarkets. He said that these are likely the higher-income households who tend to buy more expensive brands and cuts of meat.

"The conventional grocery store should feel threatened and incapable of responding," Pachter said.

And because customers can buy foods and bulk items like toilet paper from a single retailer, discount retailers such as Costco, Target and Wal-Mart have reason to feel threatened, too.

Wal-Mart has been trying to address some of those online threats, pushing harder into the online market to build on its strength in its stores and groceries. It announced Friday that it's buying online men's clothing retailer Bonobos for $310 million in cash, following a string of online acquisitions including ModCloth and Moosejaw.

"They are on offense and that is a good position to be in," said Jefferies analyst Dan Binder, referring to Wal-Mart.

About 56 percent of Wal-Mart's net U.S. sales come from groceries, and the company has been lowering prices, improving private brand offerings and expanding online grocery pickup service from about 700 markets today to about 1,000 this year.

"Our customers are looking for shopping experiences that provide everyday low pricing and a mix of physical and digital channels that work best for their needs. We feel great about our position, with more than 4,500 stores around the country and fast growing e-commerce and online grocery businesses," Wal-Mart spokesman Randy Hargrove said Friday.

Whole Foods, founded in 1978, saw its stock peak in 2013 at $65.24. The key measure that retailers look at to gauge their health, revenue at stores open more than a year, has fallen for seven quarters in a row.

Whole Foods Market shares rose $9.62, or 29 percent, to close Friday at $42.68. Shares of Amazon.com rose $23.54, or 2.4 percent, to close at $987.71.

Information for this article was contributed by Angel Gonzalez of The Seattle Times; Anick Jesdanun, Anne D'Innocenzio and Stan Choe of The Associated Press; Matthew Boyle of Bloomberg News; and Robbie Neiswanger of the Arkansas Democrat-Gazette.</s>Online retail giant Amazon is buying Whole Foods Market in a $13.7bn (£10.7bn) deal.

The all-cash deal could be game-changing for the traditional supermarket business.

Buying Whole Foods, the biggest premium grocer in the US, will radically accelerate Amazon’s ambitions in the $800bn US food and grocery sector.

Amazon is the fourth biggest business in the US and accounts for 43% of online sales there. Whole Foods, founded in 1980, has about 460 stores, including nine in the UK where it has operated since 2004.

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

“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.”
Amazon agrees to buy Whole Foods Market for $13.7 billion. The takeover deal is expected to be completed in the second half of the year.