Morning Report: Whole Foods Wanted $4 More Per Share, And Amazon Said No (Mostly)

Morning Report: Amazon wanted Whole Foods. So did other companies. Amazon wanted to pay $41 per share. Whole Foods wanted $45. Amazon said no, but we’ll do $42.

Details of the Amazon-Whole Foods tie-up, an acquisition likely causing heartburn for private (Instacart) and public (Blue Apron) unicorns, have emerged due to great reporting from CNBC.

You can read the full filing here, but this morning we’re going to extract the Amazon motes to show how Whole Foods didn’t get (roughly) an extra billion dollars from Seattle.

Following quite a lot of private equity tumult, we dial into our story in May, when Amazon made its initial bid:

On May 23, 2017, the Company received a written offer from Amazon.com to acquire the Company for $41.00 per share of the Company’s common stock, subject to confirmatory due diligence, satisfactory documentation and final board approval. In its letter, Amazon.com expressed its belief that the offer represented compelling and certain value for the Company’s shareholders, considered its interest in the Company to be highly sensitive, and said that it reserved the right to terminate discussions if there was any leak or rumor of its interest in acquiring the Company. The letter also indicated that Amazon.com viewed the proposed transaction as a strategic investment for Amazon.com.

After a sheaf of meetings, Whole Foods and its crew decided to counter:

On May 30, 2017, the board of directors held an in person meeting in New York […]  After a discussion of potential responses [to Amazon], the board of directors decided that making a counter proposal at a higher price was the most effective response and resolved to make a counter-proposal to Amazon.com at $45.00 per share. Later that day, representatives from Evercore, on behalf of the board of directors, communicated the $45.00 per share counter proposal to representatives from Goldman Sachs. The Goldman Sachs representatives expressed their disappointment at the price specified in the Company’s counter proposal as they had previously informed the Evercore representatives that Amazon.com believed that it had made a very strong bid.

So that’s Amazon balking a bit. But at how many dollars? Doing some incredibly crude math, it looks like it’s about $1 billion, give or take $50 million. That works out to around 7 percent of the later-final purchase price. But we’re not there yet.

First, we have to watch Amazon engage in what is called “Hollywooding” in poker:

On June 1, 2017, representatives from Evercore spoke with representatives from Goldman Sachs again regarding the spread between Amazon.com’s offer and the Company’s counter proposal. On the call, the representatives from Goldman Sachs communicated that Amazon.com was considering other opportunities instead of acquiring the Company and had been considering whether to respond to the Company’s $45.00 counter proposal at all or to pursue other opportunities.

Rolling your eyes a bit? Let’s finish the paragraph, sticking to the first day of June:

The representatives from Goldman Sachs then said that as a last stretch Amazon.com was willing to offer $42.00 per share but stressed several times that this was Amazon.com’s best and final offer. The representatives from Goldman Sachs also made it clear again to the representatives from Evercore that Amazon.com would disengage from its efforts to acquire the Company and pursue other alternatives and initiatives if the $42.00 per share price were not accepted[.]

There’s the ultimatum. What happened next? Some quick hits:

• On the same day, Whole Foods decided to accept the offer: “Following discussion with Wachtell Lipton and Evercore, the board of directors unanimously authorized Evercore to inform Goldman Sachs that the Company was willing to move forward to negotiate a transaction at a $42.00 per share cash price.”
• Due diligence ensued from June 2 for “a week and a half.”
• From June 12 through June 14, the companies worked to “resolve the major open issues on the draft merger agreement, including the amount and triggers for the termination fee and the regulatory efforts covenant.”
• June 15: “[T]he [Whole Foods] board of directors unanimously determined that the merger was fair to, and in the best interests of, the Company and its shareholders, unanimously approved and declared advisable the merger agreement, the merger and the other transactions contemplated by the merger agreement and authorized the Company to enter into the merger agreement.”
• And then, over the next few dozen hours: “Following the board meeting, the parties completed the transaction documents. In the evening of June 15, 2017, the parties executed the merger agreement and in the morning of June 16, 2017, the Company and Amazon.com issued a press release announcing the transaction.”

And that’s how the deal got done. From offer to announcement? About 24 days, or just over three weeks. The result for our aforementioned unicorns? A swift kick in the shins.

From the Crunchbase Daily:

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