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Amazon may be primed for a ‘bidding war’ over Whole Foods - Barclays

Proactive Investors Monday, 19 June 2017
Amazon.com, Inc (NASDAQ:AMZN) could be primed for a fight, according to analysts at Barclays, which on Monday upgraded Whole Foods citing the possibility that a ‘bidding war’ could break out. The bank’s analysts said Amazon’s US$13.7bn takeover offer may trigger a competitive response, as it lifted Whole Foods rating to ‘overweight’ from ‘equal-weight’, and bumped up the target price to US$48 from US$38. Whole Foods Market Inc shares were slightly higher ahead of Monday’s opening in New York. Wedbush says Amazon will step up groceries delivery Elsewhere, WedBush delved into the details of what the Whole Foods acquisition could mean for the Amazon business model. Amazon is expected to increase spending to drive growth of online ordering and delivery of groceries as a result of the deal. The analysts said they see the acquisition giving Amazon’s revenue a boost but only a slight lift to earnings per share due to further spending. “We expect incremental top-line growth to be largely absorbed by increased spending as Amazon augments its grocery delivery capabilities,” they said. A jobs cull? However, Amazon has plans to cut costs by culling jobs at Whole Foods, Bloomberg has reported. The e-commerce group is said to be considering replacing Whole Foods cashiers with technology. Meanwhile, Wedbush also expects Amazon will use the grocery stores of Whole Foods as distribution centres. Following the acquisition, the number of Amazon's refrigerated US locations grows by 440 Whole Foods Market stores from an estimated 20 fulfillment centres. “As a result, Amazon is positioned to quickly expand its Amazon Fresh offering, through which Amazon Prime subscribers pay an additional US$14.99 per month for grocery delivery,” Wedbush said. Disruptive impact for Wal-Mart, Target and CostCo Investors in grocery stocks were in panic mode on Friday as Amazon Inc (NASDAQ:AMZN), 600-pound gorilla of e-commerce, made a US$13.7bn tilt for Whole Foods (NASDAQ:WFM). Amazon’s disruptive move is set to be the largest ever deal in the grocery sector, though already experts are pointing to the possibility that it may force prices lower across its stores.
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