Coverage: Whole Foods’ future ownership in question

Amazon.com Inc., seen as a possible bidder for Whole Foods Market Inc., pondered a takeover of the organic-food chain last fall but didn’t pursue a deal, according to a person with knowledge of the situation.

Spencer Soper and Craig Giammona of Bloomberg News had the news:

The e-commerce giant considered internally whether Whole Foods would help invigorate its nearly decadelong push into groceries, said the person, who asked not to be identified because the deliberations were private. The discussions never turned into a concrete plan, according to the person.

Though Whole Foods has long been seen as a buyout target, activist investor Jana Partners LLC set off a new wave of speculation this week when it acquired a stake and urged the company to evaluate a sale.

With a market valuation of $10.7 billion, the ailing organic-food retailer would be an outsized acquisition for Amazon — dwarfing its 2009 purchase of online shoe retailer Zappos for about $1.2 billion. But the deal would turn Amazon into a grocery giant overnight and help it sideline Instacart Inc., a startup that delivers grocery orders from Whole Foods stores in more than 20 states and Washington, D.C.

Shares of Whole Foods jumped as much as 4.3 percent in early trading after Bloomberg reported on the Amazon discussions. In regular New York trading, they gained 1.6 percent to $34.10. The stock was already up 9.1 percent this year through Tuesday’s close, with most of the rally coming after Jana announced its stake Monday.

Ben Rosen of the Christian Science Monitor writes that Jana’s stake could lead to changes at the company:

Jana hasn’t yet met with Whole Foods’s current board or executives including its outspoken libertarian co-founder John Mackey, according to media reports, citing people familiar with the matter. It is also unclear whether the chain will pay heed to Jana’s sharp-worded filing it submitted to the Securities and Exchange Commission four months before its deadline to launch a board fight.

In addition to reporting that it and its affiliates are the second-largest shareholders of Whole Foods, Jana proposed four new board nominees, including Mr. Bittman, a former New York Times food columnist, and Glenn Murphy, the former chief executive officer of Gap. Jana was also critical of Whole Foods’s real estate and capital allocation strategies, operations and brand development, and grocery and distribution strategies, and encouraged Whole Foods to explore how much it could sell for.

Jana’s list of potential bidders includes Amazon, as well as traditional grocery chains such as Kroger Co. and Albertsons Cos., according to Bloomberg. A private equity firm could also step in, helping take Whole Foods private to fix its problems out of the public eye.

Whole Foods responded on Tuesday by saying it is open to the views and opinions of all shareholders.

“We are committed to driving value for all Whole Foods Market shareholders and will continue to act to achieve this important objective,” Whole Foods spokeswoman Brooke Buchanan said in a statement shared with the Monitor.

Anya George Therakan and Lisa Baertlein of Reuters report that Jana is upset with Whole Foods using a main supplier:

Jana disclosed on Monday that it had raised its stake in the high-end grocer and called for changes in Whole Food’s grocery procurement and distribution strategy, which it called “suboptimal and cost-disadvantaged.”

However, analysts and consultants threw cold water on the idea.

“I don’t really give a tremendous amount of credence to (the proposal),” Wolfe Research analyst Scott Mushkin said.

United Natural’s shares were hammered following Jana’s proposal, closing down 8 percent at $39.47 on Monday, while Whole Foods stock closed up nearly 10 percent at $34.17.

United Natural’s shares have clawed back most of the losses since then, closing at $41.80 on Wednesday, as it became clear that Whole Food benefits from the scale and pricing leverage that United Natural offers, making it unlikely that the grocer would cut its dependence on the distributor.

Analysts and industry sources said Jana’s plan to get Whole Foods to rethink its distribution strategy could set the company up for failure because it lacks cost efficiencies and relationships with distributors that United Natural offers.