Why Amazon is buying Whole Foods for $13.4 Billion

Amazon announced today it has agreed to buy the Whole Foods grocery chain for $13.4 billion, as the internet retailer eyes a broader expansion of services.

It's big news.

Does this mean we'll soon be able to get $6 bottles of asparagus water delivered by drone?

Somewhere in L.A., Whole Foods executives are laughing at all of us.

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Whole Foods will continue to operate under the Whole Foods Market brand.

Reuters:

John Mackey will continue as chief executive of Whole Foods, and the company's headquarters will remain in Austin, Texas. Amazon and Whole Foods expect to close the deal during the second half of 2017.

The proposed deal would have Amazon paying $42 a share for Whole Foods, a 27 percent premium to the stock's closing price on Thursday, one day before the deal was announced. Friday, Amazon rose (3.3% by post time) as Target, Walmart and Costco Wholesale dropped.

Customers leave the Whole Foods Market in Boulder, Colorado May 10, 2017. REUTERS/Rick Wilking

From the New York Times:

For Amazon, the deal marks an ambitious push into the mammoth grocery business, an industry that in the United States accounts for around $700 to $800 billion in annual sales. Amazon is also amplifying the competition with Walmart, which has been struggling to play catch-up to the online juggernaut.

For Whole Foods, the deal represents a chance to fend off pressure from activists investors frustrated by a sluggish stock price. Whole Foods last month unveiled a sweeping overhaul of its board, replacing five directors, naming a new chairwoman and bringing in a new chief financial officer. It also laid out plans to improve operations and cut costs.

With Amazon, Whole Foods gets a deep-pocketed owner with significant technological expertise and a willingness to invest aggressively in a quest for dominance.

And Amazon wants to expand into physical stores.

The logo of Amazon is seen at the company logistics center in Lauwin-Planque, northern France on February 20, 2017. REUTERS/Pascal Rossignol

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