Amazon announced Friday that it has reached an acquisition agreement with the management of upscale grocer Whole Foods for a price of $13.7 billion.
The announcement came as a surprise to many investors, yet it does fit within recent moves and statements made by both companies.
Amazon has been on a massive expansion tear as of lately. Other recent acquisitions include online shoe retailer Zappos, streaming video service Twitch and microchip manufacturer Annapurna Labs. The Whole Foods acquisition, if approved by investors and regulators, would be by far the largest purchase ever made by Amazon.
Getting into physical retail is actually the bigger reason Amazon appears to want to buy Whole Foods. The company has been heavily experimenting with a variety of stores in its Seattle, Washington backyard, including some that operate with no cash registers. It's also opened up several bookstores across the country.
The retail behemoth has also been slowly rolling out AmazonFresh, a grocery delivery service into a limited number of cities across the U.S. and U.K. The effort has struggled somewhat, however, and the expansion into other metropolitan areas has been slow as customers have not quite warmed up to the service. Adding in the distribution and supply-chain network of Whole Foods plus its reputation for fresh, high-quality food could be exactly what Amazon's grocery needs to succeed in this space.
Agreeing to be bought out by Amazon also makes sense in light of the fact that Whole Foods recently became the target of hedge fund JANA Partners, known for its aggressive approach to asset management and its efforts to force companies it purchases stock in to make drastic changes such as spinning off divisions. John Mackey, the supermarket chain's CEO and co-founder denounced the group as "greedy bastards" in an interview with Texas Monthly that was published this week.
"These people, they just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I'm going to resist that," Mackey was quoted by the magazine as saying. "That's my baby. I'm going to protect my kid, and they've got to knock Daddy out if they want to take it over."
Under the announced terms of the deal, Mackey would continue to remain the CEO of Whole Foods. Amazon says it will pay $42 a share in cash for the company, a roughly 27 percent premium on the stock price.
Other players in the grocery space appear to have taken a hit on the market as a result of the acquisition news. Walmart's stock was down 5.7 percent, Costco was down 7.5 percent, Kroger was down 11.2 percent, and Supervalu was down 17 percent.
Amazon's purchase of Whole Foods has raised some concerns that the retail giant is becoming too big for the public interest, however.
The company appears to be aware of this growing concern. Just yesterday, Amazon posted an opening on LinkedIn for an economist job which would work with senior management to "help educate regulators and policy makers about the fundamentally procompetitive focus of Amazon's businesses."