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Amazon’s Acquisition of Whole Foods: A Case-Specific Analytical Study of the Impact of Announcement of M&A on Share Price.

Article Details

Pub. Date	: June, 2018
Product Name	: The IUP Journal of Business Strategy
Product Type	: Article
Product Code	: IJBS21806
Author Name	: Diwahar Sunder Nadar
Availability	: YES
Subject/Domain	: Management
Download Format	: PDF Format
No. of Pages	: 15

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Abstract

Previous studies have proved that the announcement of an intended merger or acquisition has an impact on the share prices of the companies involved. Market share price has therefore been a key indicator of understanding the market sentiments about the merger or acquisition. This study is with specific reference to the Amazon-Whole Foods deal in which the share price of both the companies increased after the announcement, which is a unique phenomenon. This qualitative study tries to understand the factors of the deal that could have affected the market sentiments and thereby impacted the share price. The study employs various literature for identification of the factors and FCFF model for valuation. With the aid of the literature studied, the factors identified were synergy, payment methods and cultural compatibility, amongst others. The study will provide a holistic understanding of the dynamics that caused the increase in share prices following Amazon’s acquisition of Whole Foods Market.

Description

Merger or Acquisition are tools for massive wealth creation which enable the organization to grow inorganically. Measurement of the mergers and the value created due to it and its distribution among the entities concerned have always been a topic of research (Andrade et al., 2001)

On June 2017, the acquisition of Whole Foods by Amazon was announced for $13.7 bn at $42 per share and a 27% premium, which would result in Whole Foods operating as a subsidiary of Amazon. The merger would lead to the absorption of the American chain of supermarkets founded in 1978 by the e-commerce company founded in 1994. On the one hand, Whole Foods had been suffering from declining revenue growth and profits due to intensified competition, whereas Amazon is the most valuable retailer in terms of market capitalization. The share prices of listed companies are highly sensitive to speculation regarding the value creation and its distribution. The market sentiments and estimations are reflected in the share price movement post announcement of the merger or acquisition. For the company which is deemed to have benefitted the most, the share price turns favorable and vice versa (Rosen, 2006 and Morrell, 2017).