It is an intriguing love story filled with jealous suitors, a spot of harassment, and a final impulsive decision to wed – without a pre-nup or even a short term plan for the future. But it was “love at first sight” at least according to the Whole Foods Chief Executive John Mackey – and maybe a bit of a shotgun wedding (with Jana, the activist investor and recent thorn in the side of Whole Foods behind the shotgun in spirit). The appeal of a long term strategic partner for Whole Foods is clear. It frees the grocer from the slavish focus on same store sales and quarterly earnings, which certainly acted as a distraction in recent years.
The deal also marks a staggering leap in Amazon’s push into bricks and mortar retailing and it gains a country wide footprint in prime locations. The potential synergies are endless and as the conglomerate only grows in depth and breadth – it has been the case for some years that Amazon web services comprises the majority of Amazon’s earnings.
The $13.7 billion purchase price will be funded by Amazon by debt – credit investors seem very willing to support this price paid. So it is essentially a giant equity for debt swap – a windfall for the Whole Foods investors, in particular the activist investor and still an attractive deal for the yield hungry credit investors in Amazon.
Amazon’s actions encourage us to “think big” and we have recently been following a number of managers that are focused on similarly disruptive ideas – in broad areas such as machine learning (AI), mobile payments, 3D printing, robotics and driverless cars, security and genome editing. While there is often a focus on the corrosive effects of AI on the potential for human employment, it is making a seismic impact on areas such as medical imaging, while the advances in electric vehicles will drive down costs in the automobile industry and innovations in genome editing can revolutionize healthcare.
The interesting irony is that, despite the disruption at the heart of Amazon, there is a latter emphasis on traditional trappings – bricks and mortar, local food sourcing and experiential shopping that cannot be outsourced or replicated. Arguably the winning companies and stocks will be those that can marry the need for traditional look and feel with cutting edge technologies. With growth stocks soaring this year and tech in particular far ahead, investors are clearly already on the hunt for the next “big idea” and this trend is unlikely to die down soon.