Whole Foods inks $565M deal for Wild Oats
Shares of both companies jump after hours, with Wild Oats gaining nearly 17 percent.
February 21 2007: 6:09 PM EST
NEW YORK (Reuters) -- Whole Foods said on Wednesday it will buy smaller rival Wild Oats Markets for about $565 million to help it compete with much larger traditional grocers, which are increasingly offering organic foods.
Shares of Whole Foods (Charts), the world's largest natural and organic grocery chain, which is facing slowing growth at established stores, rose nearly 5 percent following the announcement, while Wild Oats (Charts) shares soared almost 17 percent.
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The news came as Whole Foods reported a 7.7 percent drop in quarterly earnings. Even though total sales rose, the company has seen much lower increases in sales at older stores, while costs for health care and store openings are rising.
Whole Foods will pay $18.50 a share in cash for Boulder, Colorado-based Wild Oats - an 18 percent premium to the company's closing share price on Wednesday. Whole Foods will also assume $106 million of Wild Oats' debt.
Wal-Mart (Charts) and Safeway (Charts) have both added more organic fare, and Whole Foods is also feeling pressure from niche retailers like privately held Trader Joe's and Wegmans.
"The growth opportunity in this category has led to increased competition from many players, most of whom are not dedicated natural and organic foods supermarkets, but are considerably larger than we are," Whole Foods Chief Executive John Mackey said in a statement. "The timing for our two companies to join forces could not have been better."
With the move, Austin, Texas-based Whole Foods will keep Wild Oats out of the hands of a traditional grocer, which could have used the chain's expertise in the organic and natural food market to compete against Whole Foods.
"Offense is the best defense," said Ken Harris of consulting firm Cannondale Associates. "They were either going to buy Wild Oats, or somebody else was going to do it."
Whole Foods said it earned $53.8 million, or 38 cents per share, in its fiscal first quarter, compared to a profit of $58.3 million, or 42 cents per share, a year earlier.
Wall Street analysts, on average, had been expecting earnings of 36 cents per share, according to Reuters Estimates.
Sales rose 12 percent to $1.87 billion.
Same-store sales, which tracks sales at stores open at least a year, rose 7 percent in the quarter, after rising 13 percent in the year-ago quarter.
In November, Whole Foods said it was pressured by traditional grocers adopting the fresh produce and prepared meals that are a cornerstone of its strategy.
At that time, CEO Mackey said fiscal 2007 would "be a transition year" for Whole Foods and forecast same-store sales growth of 6 percent to 8 percent. The company on Wednesday reiterated that forecast, which was below the double-digit same-store sales increases it has posted for the past three years.
Whole foods has 191 stores in the United States, Canada and the United Kingdom. Wild Oats has 110 stores in the United States and Canada.
Whole Foods shares were at $47.90 in after-hours trade after closing at $45.70 on Nasdaq. Wild Oats' stock, meanwhile, soared to $18.35 after closing at $15.72.
Yucaipa Companies, a Los Angeles-based private equity firm for which former President Bill Clinton serves as adviser, owns 15.2 percent of Wild Oats' shares.
Yucaipa, founded by billionaire grocery magnate Ron Burkle, focuses its investments on the supermarket and grocery industries.
http://money.cnn.com/2007/02/21/news/companies/whole_foods.reut/index.htm?cnn=yes
Shares of both companies jump after hours, with Wild Oats gaining nearly 17 percent.
February 21 2007: 6:09 PM EST
NEW YORK (Reuters) -- Whole Foods said on Wednesday it will buy smaller rival Wild Oats Markets for about $565 million to help it compete with much larger traditional grocers, which are increasingly offering organic foods.
Shares of Whole Foods (Charts), the world's largest natural and organic grocery chain, which is facing slowing growth at established stores, rose nearly 5 percent following the announcement, while Wild Oats (Charts) shares soared almost 17 percent.
Video
The news came as Whole Foods reported a 7.7 percent drop in quarterly earnings. Even though total sales rose, the company has seen much lower increases in sales at older stores, while costs for health care and store openings are rising.
Whole Foods will pay $18.50 a share in cash for Boulder, Colorado-based Wild Oats - an 18 percent premium to the company's closing share price on Wednesday. Whole Foods will also assume $106 million of Wild Oats' debt.
Wal-Mart (Charts) and Safeway (Charts) have both added more organic fare, and Whole Foods is also feeling pressure from niche retailers like privately held Trader Joe's and Wegmans.
"The growth opportunity in this category has led to increased competition from many players, most of whom are not dedicated natural and organic foods supermarkets, but are considerably larger than we are," Whole Foods Chief Executive John Mackey said in a statement. "The timing for our two companies to join forces could not have been better."
With the move, Austin, Texas-based Whole Foods will keep Wild Oats out of the hands of a traditional grocer, which could have used the chain's expertise in the organic and natural food market to compete against Whole Foods.
"Offense is the best defense," said Ken Harris of consulting firm Cannondale Associates. "They were either going to buy Wild Oats, or somebody else was going to do it."
Whole Foods said it earned $53.8 million, or 38 cents per share, in its fiscal first quarter, compared to a profit of $58.3 million, or 42 cents per share, a year earlier.
Wall Street analysts, on average, had been expecting earnings of 36 cents per share, according to Reuters Estimates.
Sales rose 12 percent to $1.87 billion.
Same-store sales, which tracks sales at stores open at least a year, rose 7 percent in the quarter, after rising 13 percent in the year-ago quarter.
In November, Whole Foods said it was pressured by traditional grocers adopting the fresh produce and prepared meals that are a cornerstone of its strategy.
At that time, CEO Mackey said fiscal 2007 would "be a transition year" for Whole Foods and forecast same-store sales growth of 6 percent to 8 percent. The company on Wednesday reiterated that forecast, which was below the double-digit same-store sales increases it has posted for the past three years.
Whole foods has 191 stores in the United States, Canada and the United Kingdom. Wild Oats has 110 stores in the United States and Canada.
Whole Foods shares were at $47.90 in after-hours trade after closing at $45.70 on Nasdaq. Wild Oats' stock, meanwhile, soared to $18.35 after closing at $15.72.
Yucaipa Companies, a Los Angeles-based private equity firm for which former President Bill Clinton serves as adviser, owns 15.2 percent of Wild Oats' shares.
Yucaipa, founded by billionaire grocery magnate Ron Burkle, focuses its investments on the supermarket and grocery industries.
http://money.cnn.com/2007/02/21/news/companies/whole_foods.reut/index.htm?cnn=yes
