E-commerce giant Amazon (AMZN - Free Report) shocked Wall Street on Friday by announcing their plans to buy organic grocery chain Whole Foods Market in a deal valued at $13.7 billion, or $42 a share. Amazon’s offer represents a 27% premium to Whole Foods’ closing price on Thursday. The deal is expected to close in the second half of this year.
Shares of Whole Foods skyrocketed on the news, and the stock is currently up almost 27% as of 9:09 AM EST. AMZN stock is also gaining, up about 3.6% around the same time to $999.28 per share.
Whole Foods has struggled recently as more competitors encroach on the natural and organic grocery sector. National giants like Walmart (WMT - Free Report) and Kroger (KR - Free Report) have seriously stepped up their organic offerings over the last few years, while fast-growing chains like Aldi are expanding into Whole Foods’ covetable markets (also read: Why Aldi is the Grocery Store of the Future).
As a result, the company came under pressure from activist investor Jana Partners, which also acquired a sizable stake, and money manager Neuberger Berman. Both called on Whole Foods to sell itself or consider a merger offer, and criticized the grocery chain for poor performance.
"This partnership presents an opportunity to maximize value for Whole Foods Market's shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers," John Mackey, Whole Foods' CEO, said in a statement.
Mackey will remain the chief executive after the deal closes, and the company will continue to operate under the Whole Foods brand.
This also marks Amazon’s biggest acquisition to date. The company bought Twitch Interactive Inc. for $970 million in cash back in 2014.
The deal sent other grocery stocks into a freefall on Friday. Shares of Kroger are down over 13.5% in morning trading; the company has been hit hard recently, no thanks to a disappointing earnings report, and has seen its stock tumble nearly 33% in the last two days.
Sprouts Farmers Market (SFM - Free Report) stock is down over 10%, while shares of Walmart are down over 6% in the same time frame. Target (TGT - Free Report) has tumbled over 10% so far today, and wholsale giant Costco (COST - Free Report) is also trading down almost 7%.
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