Amazon’s Acquisition of Whole Foods

This report is a full-blown analysis of Amazon’s acquisition of Whole Foods on 16th June 2017.
The analysis covers strategic assessment of Amazon and Whole Foods individually, synergy
valuation, premium paid and post-acquisition outcomes. Sources for all data and inputs have
been listed towards the end of the report in an annexure.

Amazon.com
Introducing Jeff Bezos and Amazon…

Jeffery Bezos became Senior Vice President of the hedge fund DE Shaw in 1993 at the age of 30.
In 1994, he left DE Shaw to start an online bookstore. He initially named his company Cadabra,
but later changed it to Amazon (after the Amazon river). Bezos accepted $300,000 from his
parents to start Amazon. For what is now the most valued company globally, he warned his early
investors that there was a 70% chance that Amazon would fail or go bankrupt. Over the years,
the online bookstore has now become one of the largest retail marketplaces in the world.

During the early days, Bezos described his company as the “Earth’s biggest bookstore” and used
major book distributors and wholesalers to fulfill orders. Within two years of founding – Amazon
was selling over 2.5 million books online and sold ~$150 million worth of books. Having already
developed a thriving online book store, Bezos shifted his attention to selling all sorts of products
and then began developing products of its own such as the Amazon Kindle and the Amazon Fire
Stick. While retail is the bread and butter of the Amazon business, it is not in fact the profit center.
The final key part of Amazon’s business is its web services platform is a cloud computing offering
which initially started from selling Amazon’s excess capacity that they had built internally. Today
Amazon operates in almost every consumer facing market imaginable – retail, entertainment,
technology, grocery, food delivery, pet, autos, and the list continues.

Analysing Amazon’s strategic intent…

Since its founding, Amazon has been on a meteoric rise to the top, driven by excellent execution
on a strategic vision and intense reinvestment in growth. The company’s vision as defined by the
founder of Amazon, Jeff Bezos, is “to be earth's most customer-centric company; to build a place
where people can come to find and discover anything they might want to buy online."
Amazon executes on this vision of being the most consumer centric company every day that a
new news story pops regarding a new industry that Bezos has targeted. Per Bylund, a contributor
for Entrepreneur.com, claims that Amazon’s success comes from the company’s customer first
focus driven by three steps. First Amazon figured out what their customer’s craved - quick
delivery. Next, they determined how to overcome challenges that competitors faced which led
to customer frustration (i.e. difficult returns, slow delivery, and limited availability). Lastly, they
aimed to satisfy every single customer. Amazon’s business is not wildly creative or innovative,
but instead they derive their success from their ability to leverage their core competency, their
supply chain, into a variety of business, to serve the needs of a customer. Once Amazon had the
supply chain for the delivery of books in place, the company was able to pivot into an ecommerce
juggernaut using its network to sell all sorts of products. The second element of the company’s
mission statement – “to build a place where people can come to find and discover anything they
might want to buy online,” drives another piece of the company’s success. Amazon is unwilling
to stand still. Tom Popomaronis, a contributor for Forbes, makes the case that the company’s
success is attributable to the fact that it never allows itself to get comfortable. Amazon is always
pushing to leverage their platform into new markets and finding new areas to disrupt. Bezos and
his team are seemingly always looking to make the platform more compelling and able to offer
anything that a consumer might want to buy online. While the commitment to the company’s
strategy is impeccable, Amazon’s vast growth would not have been possible without willing
equity and debt investors in the business. Since the Company went public on May 15, 1997, the
company has enjoyed significant appreciation with the exception of three major periods: the tech
bubble of the early 2000s, the financial crisis, and late 2013. With the exception of these three
periods, the rise of Amazon has been dramatic with an appreciation of +58,000% since its IPO.
Jon Markman, a contributor for Forbes, makes the case that sometimes profit isn’t the most
important element for investors, which is what has allowed Amazon to thrive and appreciate to
incredible levels. Sometimes investors will buy into a company due to its vision and story which
is exactly why individuals and institutions that have been willing to invest in Amazon across the
capital structure. This willingness to invest has given Amazon access to highly affordable debt
which has led to the ability to “experiment patiently, accept failures, plant seeds, protect
saplings, and double down when [they have seen] customer delight.” Matthew Yglesias, an
author for Slate, points to the fact that Amazon is “constantly [sacrificing] short-term profit in
the interest of serving other constituencies… including customers, employees, and the
community.” With the trust of investors, Amazon has been able to continue to thrive and invest
in the long term because investors have, to this point, trusted management to invest their capital
wisely. Yglesias claims that investors are lending this trust based on the belief that Amazon will
eventually gain “monopoly pricing power” and start significantly raising prices.

Whole Foods
Introducing Whole Foods…

The Whole Foods Market company was the first one who created and developed the natural and
organic food supermarket concept in 1980 in Austin, Texas. It was founded by four partners, John
Mackey, Renee Lawson, Craig Weller and Mark Skiles, who merged two companies, a vegetarian
natural food store SaferWay owned by Mackey and Lawson and a natural food store Clarksville
Natural Grocery owned by Weller and Skiles. At that time there were only six small natural food
stores across the United States.

Starting from 1984 the company began its out of Austin expansion to other American cities: they
started from Houston, then Dallas and after that they opened their first store outside of Texas
and the sixth store in total by purchasing Whole Food Company in New Orleans in 1988. That was
the start of a more than a decade period of the growth and expansion led mainly by mergers and
acquisitions. Following the start of the M&A series, the company went public at split-adjusted
IPO price of $1.06 per share in 1992. Series of mergers and acquisitions included Wellspring
Grocery in North Carolina (1991), Bread and Circus in Massachusetts and Rhode Island (1992),
Mrs. Gooch’s in southern California (1993), Fresh Fields in north-eastern and mid-Atlantic states
and Illinois (1996), Bread of Life in Florida (1997), Merchant of Vino in Michigan (1997), Harry’s
Farmers Market in Georgia (2001) and Food for Thought in northern California (2001). All of these
grocery regional chains had natural and organic food stores located in different parts of the US
and shared the quality standards with the acquirer. The Whole Foods Market incorporated some
ideas of the healthy food and hired many employees from the acquired companies. In 1996 the
company already consisted of 70 stores across 16 states with $1 bn revenue and a growth of 20%
per year. These numbers were still small comparing to common food supermarkets’ numbers but
showed high prospects for the future. The Whole Foods Market started an international
expansion in 2002 by opening a store in Toronto, Canada and then continued with entering the
British market.

Evolution over the years…

In 1980s and 1990s the company was famous for being the one who tailors the eating habits of
Americans by providing them with the healthy natural food. The stores were full of nuts, grains
and a big variety of vegetables that were partially supplied by local farmers who could show at
the company’s doorstep unannounced with their harvest. The target audience of the Whole
Foods stores was highly educated people who put a lot of emphasis on what they eat in their
everyday life. The guiding principles of the company were to sell high quality food, to create
smooth and pleasant customer experience, to create a satisfying and comfortable corporate
culture, to respect environment and to conduct a responsible business. To enhance the customer
experience, the stores included the on-site bakeries, kitchens, light spacious spaces, as former
co-COO was stating that 60% of shopping is impulse and the impulse can be triggered by the
surrounding exciting and beautiful environment. Apart from installing the solar panels on the
roofs of its stores, the company used to give 5% of profits to charity.

In 1996 John Mackey, CEO of the Whole Foods, and 60 employees (out of ~600 employees at that
time) went to the retreat that was dedicated to the creation of the Declaration of
Interdependence, the document that comprised the guiding principles and the mission of the
company, that helped to develop the company and grow the customer base all across and outside
of the US. The Whole Foods did not keep the mission and its principles to itself, the mission and
principles were posted on the walls in its stores, printed in the marketing brochures, so that
customers were not only simply buying organic food there but also relating themselves to the
principles and mission of the company. This was unique about the Whole Foods Market, that was
creating the culture together with the customers. Of course, part of its success was due to the
fact that the whole culture was changing – people started to pay attention to the food labels,
shop more, cook less, the demography of the usual food shoppers also changed, there was an
overall trend towards healthier lifestyle.
John Mackey believed that people are willing to pay much more for organic food than for the
food from an ordinary around the corner store. Most of the stores were located in the upscale
neighbourhoods where people could afford to pay high prices for the organic food. At some point
the Whole Foods Market had a nickname “Whole paycheck”. That is why the company launched
the Whole Foods 365 Everyday Value, the private label that had lower prices. However, the
company always relied on the word-of-mouth advertising and was spending less than 0.5% of its
sales on marketing and advertising, which was much less than the industry average.

Battling competition…

With time the Whole Foods competitors like Kroger, Safeway, Wal-Mart started to offer organic
products as well. In 2007 the company wanted to merge with the second largest national and
organic foods supermarket chain the Wild Oats partially because of the increasing competition.
The Wild Oats had annual sales of $1 bn, 110 stores in 24 states. The deal was the biggest among
the previous M&A deals that the company concluded and was estimated at $565 mln. The
potential deal raised concerns to the Federal Trade Commission who claimed that the deal can
lead to an increase in prices for natural and organic products due to the limited competition. The
final settlement was reached only in 2009, the Whole Foods agreed to close some of the Wild
Oats stores. The Whole Foods closed the 2008 fiscal year with $736 mln in the long-term debt
and more than $19 mln spent on legal fees in Federal Trade Commission legal bills. In 2009 only
55 out of 109 Wild Oats stores were not closed.

Starting from the peak in 2006 at $80, the stock price started to decrease after that and reached
$9 in 2009, losing 76% in one year. In 2008 the company sold 17% of stake to the private equity
firm Green Equity Investors. In 2009 there was an additional downside shock in the company.
After the announcement of Obamacare John Mackey wrote an Op-Ed in the Wall Street Journal
heavily criticizing the Obamacare, what led to the boycott of part of the Whole Foods customers.
Towards 2013 the company tried to recover its previous positions and achieved the stock price
of $65.24 after the launch of the first labelling of GMO products among all retailers in the US.

Despite all the efforts the Whole Foods business were not doing well, as it was facing not only
competition for customers from Kroger, Wal-Mart, Trader Joes’ and other companies that were
selling the organic and natural food, but also for the suppliers as their number was limited on the
market. The situation the Whole Foods were facing was not easy: if they were to cut prices for
customers, they had to decrease the quality of its products risking of losing a core customer
segment that represented less price-sensitive high-quality oriented clients. As a result, the
company opened the Whole Foods 365 stores, that were selling the lower price natural products,
offered packaged and prepared food. However, it did not help the company and towards 2017
its sales continued to decrease.

During 2017 the company was approached by a number of investors who wanted to pursue a
partnership or other strategic options. In April 2017 JANA Partners, a hedge fund, acquired 8.8%
of the Whole Foods stock. It pushed for a strategic and operational change of the Whole Foods,
pushing for a further cut in costs. In May the Whole Foods released the financial statements that
showed the 7th quarter in a row of a decline in sales. In the same month the Whole Foods was
approached by Amazon for the first time.

Acquisition Analysis: Amazon <> Whole Foods

Evaluating synergies…

Amazon-Whole Foods deal is still one of the hottest discussion points for the business world even
now after almost two years of deal completion. As known, Amazon paid almost 27% of premium
to Whole Foods shareholders amidst declining stock prices and declining earnings of Whole Foods
in recent years leading to the deal, which is completed in 2017.

The premium paid could be mainly explained by two main categories. The first category is
Amazon’s long-term strategy. Amazon has long aspired to enter the food retail market, especially
in the distribution part of the value chain. Failing couple attempts between 2010-2015, it made
perfect sense at a point of high growth but low diversification opportunities for to acquire a well-
established brand name, such as Whole Foods, from strategic point of view. So, we have
concluded that part of the 27% premium was paid for the control premium for strategic purposes.
The second category could well explain the premium paid for is the synergies Amazon estimated
between their business and Whole Foods’. The synergies for Amazon were both on cost and on
revenue side. In terms of the cost synergies, it is well reasoned that Amazon had the right
operational excellency to optimize Whole Foods’ businesses. Analyzing Whole Foods’ historical
data, it is obvious that their operating expenses has increased on average by 5% between 2013-
2018. Even if Amazon was able to cut that 5% increase to stable levels, it could add up to over
$50 million savings dependent on number of assumptions. Under cost synergies category, it is
possible that Amazon also looked into Digitalization and Data Mining opportunities. Whole Foods
was criticized for the recent years for their slow adaptation to digital opportunities in their stores
compared to their competitors.
On revenue synergies category, there are multiple opportunities to be explored. One of the most
important points is Cross-selling opportunities between two businesses. By taking relatively
conservative view on other drivers, back engineering the 27% premium, we concluded that 10%
growth on top line over 5 years would have given Amazon more than 27% higher valuation.
Amazon already has tapped into cross selling opportunity since the deal closure. Majority of
Whole Foods store have been upgraded with Amazon pick up/drop off centers, where customers
have easier access to Amazon services. Furthermore, Amazon extended benefits of their Prime
Membership to Whole Foods to incentivize Amazoners to shop at Whole Foods. Additionally,
cross selling between two businesses has potential of growing fresh food delivery at national
level and capture economies of scale and economies of scope opportunities. As mentioned
before Amazon expressed interest multiple times to enter the fresh food delivery market by
leveraging on their network. Thanks to Whole Foods deal, they have started already the
operations in selected locations. Another important synergy is Amazon’s ability to take Whole
Foods from regional to national level thanks to their financial capabilities and operational
network and experience.

Valuing the deal…

Deal details of Amazon acquisition of Whole Foods can be summarized as below table.

The ex-ante share price of Whole Foods before deal completion was traded around $33/share.
Amazon offered Whole Foods $13.7 billion all cash deal, which was translated as $42/share for
common equity shareholders. By the time of deal completion, Whole Foods had following
fundamental financial metrics;
 To value the deal, we have used DCF analysis to analyze premiums paid to equity shareholders
under different scenarios by using FY2017 as the base year. Projecting the FCF for next 5 years
alongside with terminal value for the rest of the future growth, we have concluded on a wide
range of potential Fair Value of Share price for Whole foods, that ranged between $31-$41, as
can be seen in the below summary table.

For the base case, we have assumed average of last 5 years CAGR in revenues~6% of growth rate
in revenues. For optimistic scenario, we used 10% growth rate, which was the average of last 10
years growth in revenues. For pessimistic scenario, we used 1.5% growth in revenues, which is
equal to last two years growth rate.

In this context, it is obvious that markets at the time of deal valued Whole Foods closer to our
Pessimistic scenario at around 2% growth rate in revenues. Whereas, Amazon valued the deal
closer to our Optimistic scenario, which would be equal to 10% growth in sales if we were to
assume no other synergies were assumed by Amazon. Hence, if optimistic case were Amazon’s
real valuation, then we could even conclude that Amazon paid no premium for the transaction
from their perspective.
Post-acquisition Analysis: Synergies & Financials

Market reaction to the deal…

On the date of the acquisition announcement (Friday June 16th, 2017), shares of Whole Foods
Market rose a whopping 28%. The shares were trading at around the offer price of $42 per share.
Amazon’s stock rose 3% and was even temporarily trading at above $1,000. The rise of the stock
prices clearly indicates that the market viewed the acquisition in a very good light.

Furthermore, if you compare Whole Food’s and Amazon’s market value of equity before and
after the announcement, you can also determine what the market believed to be the value of
the synergies. On June 15th, Whole Foods had a market capitalization of $10.6 billion and Amazon
had a market capitalization of $460.9 billion. By the end of the day on June 16th, Whole Foods'
market capitalization was $13.7 (the price that they were acquired at), and Amazon's was $472.1
billion. If you take the combined increase across the two firms, you can see that the market
thought that the acquisition created $14.3 billion in synergies – more than the purchase price of
the Whole Foods. This essentially means that the market thought Whole Foods was worth much
more with Amazon that it was alone.

It is also interesting to look at stock price changes for Amazon and Whole Foods’ direct and
indirect competitors to gauge the market’s reaction to acquisition. It is evident that the news
negatively impacted several industries, including food and grocery, big-box retailers, and even
consumer packaged goods. Shares of large grocery chains dropped that Friday. Kroger’s stock
dropped 14.5%, Supervalu’s dropped 17% and Sprouts Farmers’ dropped 12.7%. European
grocery stores, including Sainsbury and Tesco, also suffered. Stocks of big-box retailers Target
and Wal-Mart fell dramatically. Target was down 10%, while Wal-Mart was down around 7%.
Consumer packaged goods companies, Kellogg and General Mills, dropped 2% and 3%,
respectively on Friday. All of these price drops imply that the market thought that Amazon buying
Whole Foods would significantly harm competition.

It is clear that these companies also felt threatened and were worried about their future outlook
given Jeff Bezos’ power play. Wal-Mart was quick to counter with news that it was acquiring
Bonobos, the direct-to-consumer menswear fashion retailer, for $310 million.
What happened to the expected synergies…?

The types of synergies that Amazon hoped to gain from the Whole Foods acquisition can be
broken down into revenue synergies and cost synergies.

On the revenue synergy side, Amazon hoped to convert Whole Foods shoppers into Amazon
Prime members and increase foot traffic in Whole Foods by incentivizing Prime members to shop
there. When the acquisition news was announced, Morgan Stanley estimated that 38% of Whole
Foods shoppers, ~5 million households, did not subscribe to Prime and 80% of Amazon Prime
members in the US, ~38 million people, did not shop at Whole Foods. Morgan Stanley predicted
that Amazon would convert half the 5 million Prime holdouts into Prime subscribers. Amazon
Prime in the US is a $99-a-year subscription, so by converting these households Amazon would
increase their revenues by nearly $250M. This synergy has more or less been achieved. In just a
year after the acquisition, 41% of new Whole Foods consumers were already Prime members,
compared to 34% the previous year. In order to do this, Amazon had several Prime perks
advertised within Whole Food. Notably, in July 2018 Whole Foods hosted “Amazon Prime Day”
and offered Amazon credit to Prime members who shopped over $10 at Whole Foods. This not
only boosted sales for Whole Foods, but also boosted Prime subscriptions.

Simultaneously, Amazon was looking to attract new customers to Whole Foods (especially those
with Prime memberships). Morgan Stanley predicted that Whole Foods would add 15 million new
customers over the five years following the Amazon buyout, more than doubling its shopper
base. In order to do this Amazon offered 10% off on sale items for Prime members, Amazon Prime
pickup within Whole Food stores, and two-hour Whole Foods delivery to Prime members (free
for orders above $35). However, a year after the acquisition 70% of Prime members said they
hardly ever shop at Whole Foods (a mere 18% shop at Whole Foods at least once a month). Even
cross-selling Amazon products (such as the Echo) in Whole Foods stores has not allowed Amazon
to fully realize this synergy.

Whole Foods had also a difficult time shedding its negative reputation for being an overpriced
grocery store (it is often referred to as “Whole Paycheck” because of its high prices). In order to
reposition the Whole Foods brand, Amazon cut prices on select items. Additionally, they
launched a dozen discount stores, called Whole Foods 365, which focused on Whole Foods’
private-label brand and often had items that were cheaper than Wal-Mart. However, Amazon is
currently scrapping the idea of opening up more of these stores because they don’t see the
financial benefit. In general Amazon’s revenue from its physical stores, mainly Whole Foods,
declined by 2.7% in Q4 of 2018 from a year earlier a 1% increase in Q1 of 2018. This is actually
slower than Whole Foods revenue growth prior to the acquisition. So, it can be said that the move
to attract new customers to Whole Foods has not quite materialized and is proving to be
extremely difficult.

On the cost synergy side, Amazon has begun to centralize purchasing for Whole Foods’ suppliers.
The goal of this was to make sure purchasing decisions were controlled by a central authority (in
Whole Foods’ headquarters in Austin, Texas) and not by individual regional Whole Foods
managers. In doing so, Whole Foods purchasing has shifted toward fewer local brands and more
common brands (Tropicana, Nature Valley, etc.). While cost synergies have clearly been achieved
to an extent, this strategy has also alienated loyal customers who shopped at Whole Foods for
their unique brands and products. Many of the smaller brands were pushed off of Whole Foods
shelves because they relied on local sourcing and couldn’t scale distribution nationwide.

Does the acquisition make sense…?

While we certainly side with the market’s thought that this acquisition makes sense in the long
run, we also believe that Amazon has a long way to go to make sure that all synergies are fully
achieved. In particular, we believe that Amazon could do a lot more to leverage their shopper
data to make in-store promotions more relevant to Whole Foods shoppers. We also believe
that Amazon has a great opportunity to merge Amazon Fresh and Prime Now to deliver Whole
Foods instead of relying on delivery via Instacart. In the short run, Amazon must look to further
invest in Whole Foods in order to truly capitalize on the synergies they hoped to achieve
through the acquisition.
Post-acquisition Analysis: Qualitative assessment

Whole Foods CEO John Mackey once gushed that the Amazon deal was “love at first sight.” He
later admitted at a conference in February “if you want to stay in the marriage, you change.” How
has Amazon changed Whole Foods? There are people that describe Amazon’s acquisition of
whole foods as mixing tap water with organic extra virgin olive oil. The two company
has fundamental different culture and values. Amazon has technology advantages, using data to
drive its product development and enforcing strict employee discipline to squeeze out cost saving
to pass on to its customers. On the other hand, Whole foods emphasize its personal touch,
empowering each store to make decisions about products, focusing on providing high quality
local food. That decentralization, however, caused enormous inefficiencies that drove up prices
to the point where critics referred to the store as “Whole Paycheck.” From the opposite
perspective, this caused another biggest challenge of Whole Foods is taking what set it apart –
niche and regional products – and streamlining that into a cost-efficient, national retailer. Many
small brands point to Whole Foods as the birth ground for their new products. For Whole Foods
though, devoting shelf space to small brands, especially those that aren’t driving traffic, wasn’t
always good for the bottom line. Dealing with each brand on a reginal basis could prove
complex. Whole Foods has been trying to solve this challenge even before the Amazon
acquisition.

Wall Street hoped that Amazon’s data-driving style would enable Whole Foods to scale up and
add increase efficiency at the same time maintaining its employ-empowered culture. However, 1
year after the $13.5 billion Amazon Whole Foods acquisition, that was not what happened. Sales
and traffic are up slightly - 3%. Amazon has continued to centralize Whole Foods’ operation to
standardize the supply chain. Amazon also has rolled out numerous Prime loyalty promotions. By
June 2018, 41% of Whole Foods’ new customers were prime members, 7% higher than one year
prior.

Harvard Business School professor Dennis Campbell says, “Whole Foods has a very high-
empowerment kind of culture, so these ‘draconian’ standards, telling people where to put things
on the shelves and the loss of autonomy, employees were feeling angry from that.”
Its model encourages their employees to build relationships with customers, using creative
approaches to provide the best quality to their customers. The company reached its peak in 2013,
it started losing market shares to less pricey alternatives.
Amazon has been pursuing a frugal focus and rigorous performance. It’s able to provide low
prices and fast shipping to their customers. For the first time last year in two decades, Whole
Foods is no longer on the list of the Fortune’s best companies to work for. Since the acquisition,
Whole Foods pushed forward with automating their inventory system, started to centralize
decisions about product selection, which enable to slash their prices by as much as 40
percent. This reduced the power from the employees, and they got frustrated. Amazon is known
to be good at data driven, however, Whole Foods employees believe interacting with customers
can help them learning about their customers, it can be very localized and specific. It is not easy
to be captured in data or performance metrics. Under the pressure of turning around Whole
Foods, Amazon also switched performance measurements towards more result driven.

At year two after the acquisition, things now look much better. Whole Foods market stores held
steady. Sales at the company’s physical stores – which include about 500 Whole Foods stores, as
well as a growing fleet of Amazon bookstores, pop-ups and cashier-less Go convenience stores –
grew just 1%. However, thanks to the Prime Now app, overall sales enjoyed solid
growth. David Fildes, director, investor relations of Amazon mentioned Amazon is continuing
invest in their grocery initiatives. Amazon Fresh, Prime Now – which offers grocery as one of the
components of the selection there for the two-hour or even one-hour delivery capabilities. We’ll
keep investing in those areas and other initiatives as well where we can get food through –
Amazon Pantry, Amazon Go. There’ll be more initiatives to continue to bring to customers. It has
begun to centralize purchasing for its suppliers. This means even small brands need to go through
the standard process to get placed in a store, not through their reginal Whole Foods
representative. This approach simplifies operations and makes it easier for a brand to scale
without traveling region by region. The drawback is it’s hard for small brands to grow at such a
scale.
Whole Foods also has begun to centralize its merchandising, which means it’s now taking care of
in-store displays and setup – rather than allowing brands to outsource the task to third-party
services. So far Amazon made all the efforts to lower the cost of Whole Foods in order to bringing
in more customers. But it may also create a mainstreaming effect that could dilute Whole Foods’
carefully crafted brand. Would consumers still want to shop at Whole Foods if it offers the same
assortment as traditional grocers? In acquisitions, value creation comes from synergies, or ways
in which the two companies together are worth more than they are individually. Sometimes, the
acquiring company overpays for the acquisition, giving most or all of the synergies to their target.

Conclusion

From the Amazon’s point of view, acquiring Whole Foods provide entry into the $860 billion US
grocery industry. Amazon has already put its hands on lots of shopping data, which will come in
handy as Amazon expands its online grocery business and private label offerings. As Amazon
combines its Prime service and Whole Foods shopping experience, it’s getting even more insight
into how the same customer shops online and offline which can be leveraged on the Whole Foods
business to grow and capture a larger offline retail market share. On the synergies front as
evaluated earlier, while the market reacted positively to the acquisition, we feel there is still a
long way to go for Amazon to make this acquisition work. Overall, our conclusion is that Amazon’s
long- term purpose to be the provider of all possible products is well served with this acquisition
and is a good step in the long-term strategic goals of the company.
 ANNEXURE

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