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Whole Foods to Buy Wild Oats

 
Anonymous Coward
User ID: 195846
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02/22/2007 01:52 AM
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Whole Foods to Buy Wild Oats
This is not a good move for the consumer of organic food.

Whole Foods Agrees to Buy Wild Oats; Profit Declines (Update6)

By Josh Fineman

Feb. 21 (Bloomberg) -- Whole Foods Market Inc., the largest U.S. natural-foods grocer, said it agreed to buy rival Wild Oats Markets Inc. for $565 million after reporting its first profit decline in five quarters.

Whole Foods will pay $18.50 in cash for each share of Boulder, Colorado-based Wild Oats, 18 percent higher than its closing price today. First-quarter net income fell 7.8 percent to $53.8 million, or 38 cents a share, Austin, Texas-based Whole Foods said today. Earnings missed analysts' estimates.

Buying Wild Oats will help counter slowing growth at Whole Foods, which faced competition from Safeway Inc., Trader Joe's and other grocery stores selling organic and prepared food. First-quarter sales at Whole Foods stores open at least a year rose 7 percent, down from 13 percent a year earlier.

``Whole Foods had won the size game and was able to call the shots,'' said Matt Patsky, portfolio manager at Boston-based Winslow Management Co. which overseas $350 million, including Whole Foods shares.

Wild Oats posted a loss in two of the past five years and its sales climbed 26 percent over the period to $1.12 billion, while Whole Foods doubled profit and sales.

Whole Foods said the purchase, its largest, will be funded with $700 million in loans. The company, which agreed to begin buying Wild Oats' outstanding shares on Feb. 27, anticipates the transaction to close in April.

``Wild Oats has improved their stores quite a bit in last few years, and we think we can help them improve even more,'' Chief Executive Officer John Mackey said on a conference call with analysts and investors. ``We can put jet propulsion under a lot of those stores in the next year or two.''

Store Gains

Shares of Whole Foods rose $2.40, or 5.3 percent, to $48.10 at 6:33 p.m. in extended U.S. trading. They declined 37 cents to $46.70 at 4 p.m. in Nasdaq Stock Market composite trading. Wild Oats shares jumped $2.71, or 17 percent, to $18.43.

Whole Foods will add 110 stores in 24 states and Canada's westernmost province of British Columbia. All of Whole Foods' 11 operating regions will gain stores, with three -- the Pacific Northwest, Rocky Mountain and Florida regions -- adding ``critical mass,'' the company said in a statement.

Some Wild Oats stores will be closed and others that overlap with Whole Foods stores in development probably will be relocated, Whole Foods said. Mackey declined to say how many stores will be closed.

``Wild Oats has been waiting to sell to somebody for three or four years,'' Patsky said.

Buying Opportunity

The departure of former Chief Executive Officer Perry Odak in October and the subsequent departure of the company's chief financial officer created a buying opportunity, Mackey said on the call.

``The timing was right because of this strategic gap at Wild Oats,'' Mackey said. ``We thought it would be a good time to approach and it was.''

Whole Foods will cut significant costs from duplications in overhead with the purchase, Mackey said today on the call with investors.

``We think we will be able to improve the operations of the Wild Oats stores significantly, which will increase comps and sales,'' the CEO said on the call. The company first considered buying Wild Oats six years ago, he said. Mackey said he initiated the latest discussions with a call to Wild Oats' interim CEO Gregory Mays.

Missed Estimates

Net income in last year's first quarter was $58.3 million, or 40 cents. Earnings missed the 41-cent average estimate of 14 analysts surveyed by Bloomberg. Sales in the first quarter increased 12 percent to $1.87 billion from $1.67 billion, lagging the $1.89 billion average estimate of 10 analysts.

The company's biggest purchase previously was in 1996 when it bought Fresh Fields, at the time the second-largest U.S. natural foods chain with 22 stores. The company has made 18 acquisitions.

Whole Foods estimates it will take about two years to integrate the Wild Oats stores, Mackey said.

``A year from now we will definitely be seeing very good progress,'' Mackey said. ``It might take fully two years before you really see all the synergies begin to play out.''

Wild Oats was founded in 1987 with the purchase of Crystal Market, the only vegetarian natural foods store in Boulder, and grew partly through the acquisition of small health food stores.

Shares of Whole Foods tumbled 39 percent last year compared with a 22 percent gain for Kroger Co., the biggest U.S. grocery chain, and a 46 percent increase for Safeway, the third largest.

RBC Capital Markets served as Whole Foods' financial adviser and as the dealer manager for the proposed offer. RBC and JPMorgan Chase & Co. are co-leading the debt financing. Whole Foods wants to increase its long-term credit line to $250 million, for which JPMorgan will assist with finding an amendment. Citigroup Inc. is Wild Oats' financial adviser.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net
Last Updated: February 21, 2007 20:25 EST

[link to www.bloomberg.com]
Anonymous Coward
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02/22/2007 02:27 AM
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Re: Whole Foods to Buy Wild Oats
Probably every college campus should have Wholefoods market close by in a hippy area...

But the average American shopper will find the prices at the major supermarkets too tempting I think. That's just from my limited observations around here.
Anonymous Coward (OP)
User ID: 195846
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02/22/2007 02:31 AM
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Re: Whole Foods to Buy Wild Oats
Probably every college campus should have Wholefoods market close by in a hippy area...

But the average American shopper will find the prices at the major supermarkets too tempting I think. That's just from my limited observations around here.
 Quoting: Anonymous Coward 60359


The average American shopper doesn't use their brains and ONLY looks at prices. Most people eat processed food which is poison, even non-organic whole foods are poison - buy organic if you care about yourself and your family.
pacman
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02/22/2007 02:41 AM
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Re: Whole Foods to Buy Wild Oats
Everything I have is mostly organic now. Started buying organic almost two years ago. Finally just got all my water(except shower water) switched to reverse osmosis. The only thing I can think of still not organic is a little dr. pepper and a few reeses until i run out of those now. Didn't switch to toilet paper and will probably still use charmin for that.

Got rid of digital cable too. Almost off the grid. Yeah.
Anonymous Coward
User ID: 196457
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02/22/2007 02:42 AM
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Re: Whole Foods to Buy Wild Oats
Probably every college campus should have Wholefoods market close by in a hippy area...

But the average American shopper will find the prices at the major supermarkets too tempting I think. That's just from my limited observations around here.


The average American shopper doesn't use their brains and ONLY looks at prices. Most people eat processed food which is poison, even non-organic whole foods are poison - buy organic if you care about yourself and your family.
 Quoting: Anonymous Coward 195846


Ok, sage advice buddy. While I'm at it I'll just get me a live in chef too.
NCCCPC

User ID: 158082
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02/22/2007 02:47 AM
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Re: Whole Foods to Buy Wild Oats
Organic food is poison.
Anonymous Coward
User ID: 199219
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02/22/2007 02:50 AM
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Re: Whole Foods to Buy Wild Oats
Ahh, Whole Foods. Yuppie Paradise...

hf

* minimum required annual household income for regular shopping- $140,0000
Anonymous Coward
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02/22/2007 03:23 AM
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Re: Whole Foods to Buy Wild Oats
Organic food is poison.
 Quoting: NCCCPC


Organic ain't what it used to be. Maybe instead of using the term "organic" small producers should be allowed to put something like this on their labels: "sfpnbcs" which could be understood to stand for "Small Farm Produce Not Big Corporation Stuff"... (or something like that).

The Organic Trade Assn? Give me a break!

large companies have tried to use their muscle in Washington to their advantage. Last fall, the Organic Trade Assn., which represents corporations like Kraft, Dole, and Dean Foods, lobbied to attach a rider to the 2006 Agricultural Appropriations Bill that would weaken the nation's organic food standards by allowing certain synthetic food substances in the preparation, processing, and packaging of organic foods. That sparked outrage from organic activists. Nevertheless, the bill passed into law in November, and the new standards will go into effect later this year.

[link to www.businessweek.com]

MARCH 29, 2006
Pallavi Gogoi

Wal-Mart's Organic Offensive
Not everyone is pleased by the giant retailer's push into natural foods, starting with some very anxious U.S. farmers

Richard DeWilde has a long history with organic farming. His grandfather, Nick Hoogshagen, adopted the organic approach five decades ago on his farm in South Dakota, well before it became popular with consumers and fueled the popularity of retailers like Whole Foods Market (WFMI ).

Now, DeWilde, 57, is a working farmer himself, carrying on the family tradition of avoiding pesticides and other chemicals that can contaminate food in favor of a more natural approach. He's co-owner of Harmony Valley Farm, which grows Swiss chard, parsnips, turnips, and kale on 100 acres in the southwestern corner of Wisconsin.

So you might think that DeWilde would be overjoyed at the news that Wal-Mart (WMT ) has finally come around to his grandfather's philosophy. The juggernaut retailer said recently that it plans to double its offerings of organic products, including produce, dairy, and dry goods.

But DeWilde isn't thrilled. Instead, he's dismayed at the prospect of Wal-Mart becoming a player in the organic market. He fears that the company will use its market strength to drive down prices and hurt U.S. farmers. "Wal-Mart has the reputation of beating up on its suppliers," says DeWilde. "I certainly don't see 'selling at a lower price' as an opportunity."

CHINESE FOOD. He's hardly the only one. Many farmers who have benefited from the strong demand and healthy margins for organic goods are fretting that the market's newfound success also brings with it newfound risks. As large companies enter the market, from Kraft (KFT ) and Dean Foods (DF ) to Wal-Mart, farmers worry that the corporatization of organic foods could have negative consequences.

Large corporations have taken sizeable steps into the organic market, even if it isn't always obvious from the brands on store shelves. Silk, the best-selling branded soy milk, is a product from Dean Foods, the $10 billion behemoth that sells the most milk in the country. Cascadian Farms, which makes organic cereal, frozen fruits, and other products, is a brand of cereal giant General Mills (GIS ). And Kraft owns Boca Burgers.

The farmers' concerns go beyond simply pushing down prices. DeWilde and others fear that companies like Wal-Mart could try to lower the standards for what is classified as organic food and begin to import more supplies from China and other overseas markets. "Wal-Mart already sources a majority of its products from China, because it's so cheap to produce anything there. Why not foods?" asks Ronnie Cummins, director of the Organic Consumers Assn., a nonprofit organization that promotes natural and organic food.

SHIFTING STANDARDS. The worries that the corporatization of organics could lead to more imports aren't unfounded. Cummins estimates that already 10% of organic foods like meat and citrus are imported into the U.S. Silk soy milk, for instance, is made from organic soybeans that are bought in China and Brazil, where prices tend to be substantially lower than in the U. S. Cascadian Farms buys its organic fruits and vegetables from China and Mexico, among other countries (see BW Online, 3/27/06, "Imports From China Aren't Pricier -- Yet").

And large companies have tried to use their muscle in Washington to their advantage. Last fall, the Organic Trade Assn., which represents corporations like Kraft, Dole, and Dean Foods, lobbied to attach a rider to the 2006 Agricultural Appropriations Bill that would weaken the nation's organic food standards by allowing certain synthetic food substances in the preparation, processing, and packaging of organic foods. That sparked outrage from organic activists. Nevertheless, the bill passed into law in November, and the new standards will go into effect later this year.

Organic farmers are straining to meet rising demand, one of the reasons that legislators have been willing to drop certain requirements for organic foods. In the past year, the demand for organic milk outstripped the supply by 10% and created acute shortages. That even prompted organic dairy company Stonyfield Farms to stop producing its fat-free 32-ounce cups of yogurt. Now Stonyfield has resumed its production, but organic milk consumption nationwide is growing 30% annually.

Wal-Mart is making its aggressive move into organics at the same time it's trying to improve its environmental image. Last year, it embarked on a new green policy and has several initiatives to demonstrate how serious it is. The company recently said that it will require that all its wild-caught fresh and frozen fish meet the Marine Stewardship Council's standard for sustainable and well-managed fisheries. Fish accounts for a third of all the chain's seafood sales.

AFFORDABLE ORGANICS. While Wal-Mart didn't return phone calls seeking comment, CEO Lee Scott has been clear about his company's goals. "We know that customers at all ends of the income spectrum want organic and natural foods," he said at the company's last annual general meeting.

"But, frankly, most of them just can't afford the high prices the specialty stores charge.Well, we don't think you should have to have a lot of money to feed your family organic foods" (see BW Online, 11/29/05, "Selling Luxury to the Masses").

CEO Scott recently bragged about stocking organic cotton yoga outfits at its Sam's Club division. "We sold out in just 10 weeks...by using organic cotton instead of regular cotton, we saved the equivalent of two jumbo jets of pesticides," says Scott.

Scott is also determined to get affluent customers to spend more when they come in to buy basics like detergent at Wal-Mart. And what better way to lure them than with a range of organic produce. After all, organic foods purveyor Whole Foods typically attracts shoppers who have incomes over $50,000, while Wal-Mart's customers typically earn around $35,000 (see BW, 10/24/05, "Eating Too Fast at Whole Foods").

"CREATING MARKETS." While some farmers are concerned that Wal-Mart may try to squeeze them financially, there could be a more benign impact. Farmers who now use pesticides and other chemicals could turn to organic farming, as they see increased demand. Consider what's happening in California.

Last year, the state showed an increase of 40,000 acres, or 27%, in organic livestock production. The number of acres dedicated to organic vegetable production increased by 5,000 acres, or 12%, according to the California Certified Organic Farmers, an organics trade association. "Strong demand is creating markets here," says Jake Lewin, director of marketing at the organization.

Meanwhile, back in Wisconsin, DeWilde is preparing for warmer weather and the spring planting season. He is worried about how the increasing attention from Wal-Mart and other large companies may change the business of organic foods. Yet he's more convinced than ever of the benefits of the approach his grandfather helped champion. "It's the future of farming," he says
Anonymous Coward
User ID: 198849
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02/22/2007 09:05 PM
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Re: Whole Foods to Buy Wild Oats
I think it's a necessary evil that Walmart gets into the Organic Market.
It is a step in the right direction, it allows for the average person to start eating healthier and in turn becoming less dependent on doctors and medical drugs and this extra savings can be used to further their educational needs.

Also, possibly clearing up their brain fog and in the overall grand scheme of things could help us all in our efforts to bring down the worlds money changers.
Food IS for thought.

The average 'small' Organic farmer, those with 100 acres and less, will still be able to sell all they've got to their local markets, restaurants and farmers mkts.

It was all good while it lasted, and it's all headed in the right direction for everybody involved.
Anonymous Coward
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02/22/2007 09:13 PM
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Re: Whole Foods to Buy Wild Oats
I SHOP AT WHOLE FOODS WEEKLY.....THE QUALITY IS AMAZING! THE PRICES ARE LOWER THAN THE ORGANIC ITEMS AT THE REGULAR GROCER. I STILL PAY A PREMIUM THOUGHT.....THE INCREASE COSTS FOR FOOD OFFSETS THE HEALTHCARE COSTS. MY FAMILY ARE MUCH HEALTHIER, AND WHOLE FOODS DOES NOT CRAM JUNK FOOD DOWN YOUR FACE AS YOU ARE SHOPPING! WE LOVE IT! hf hf hf hf hf
Anonymous Coward
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02/22/2007 09:57 PM
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Re: Whole Foods to Buy Wild Oats
541, Exactly!
It would do all people good to follow your familys Healthy choices and save big money on doctor/mental health bills.
Anonymous Coward
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02/22/2007 10:11 PM
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Re: Whole Foods to Buy Wild Oats
Hmmm, the only nearby Whole Foods and Wild Oats near me are in the same city. I can't imagine they will keep both open, they're about a mile apart and I have to drive 20 miles to get to either one.
whole foods shopper/not yuppie
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02/22/2007 10:13 PM
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Re: Whole Foods to Buy Wild Oats
Nice find OP. Thank you for taking the time to post it.
Anonymous Coward
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02/22/2007 10:19 PM
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Re: Whole Foods to Buy Wild Oats
Hmmm, the only nearby Whole Foods and Wild Oats near me are in the same city. I can't imagine they will keep both open, they're about a mile apart and I have to drive 20 miles to get to either one.
 Quoting: Anonymous Coward 153788

hey man, that's the way it is in boulder! crazy shit! used to love alfalfa's at broadway and arapaho. ahh the good ole days when organic meant quality not quanity.
peace on

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