Speculating Grocer Consolidation Amid Amazon–Whole Foods Deal

Amazon.com, Inc. AMZN's $13.7 billion acquisition of organic grocer chain Whole Foods Market, Inc. 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 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 KR was down 12.55 percent at $21.47.
• Sprouts was down 6.76 percent at $20.90.
• Grocer peer Village Super Market, Inc. VLGEA was down 3.99 percent at $24.04.
• Grocer peer Weis Markets, Inc. WMK was down 5.3 percent at $48.22.
• Whole Foods was up 27.07 percent at $42.01.

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