Amazon, which is known for squeezing suppliers and has been experimenting with its own outlets, will take over a natural and organic grocer pioneer brimming with 456 stores and high-end shoppers but struggling to rein in prices and integrate technology.

The deal sent shockwaves across the food distribution market and beyond. Shares of grocer Kroger swooned 11 per cent, while Wal-Mart Stores fell five per cent, signaling fears that Amazon could cut prices and broaden Whole Foods’ product mix, turning it into a much broader retailer.

Amazon’s shares were up three per cent at $993.40, adding more than $14 billion to its market capitalization (all figures US$).

“Supermarkets will now have to contend with not only competition with each other and non-traditional grocers like Wal-Mart Stores Inc. and Target Corp., but with a retailer like Amazon which has the financial capacity to price aggressively,” said Mickey Chadha, vice-president and senior credit officer at Moody’s Investors Service.

“We expect this transaction to further accelerate the consolidation within the supermarket space.”

Amazon has agreed to pay $42 per share in cash for Whole Foods, a 27 per cent premium on the Austin, Texas-based grocer’s closing share price on Thursday. Whole Foods shares were trading just above that level on Friday, as investors saw negligible regulatory risk to the deal closing.

A person familiar with Amazon’s strategy said the company believed customers wanted a combination of online and real-world buying options.

Amazon has been looking at stores that could allow traditional in-store purchase, online ordering with on-site pickup, and home delivery, using the store’s warehouse as a distribution point.

Still, Amazon is playing catch-up in the grocery business. Wal-Mart already offers in-store pickup. Amazon announced a similar service called AmazonFresh Pickup at two locations.

Amazon also has dealt with technology problems at a prototype store inside its corporate office in Seattle, called Amazon Go, where sensors and tech-savvy cameras detect what shoppers pull off the shelves and charge their Amazon accounts when they leave, people familiar with the matter said. That has delayed opening the store to the general public, they added.

And while some analysts expected Amazon to bring vast buying power to Whole Foods, Amazon’s heft in the food market is far smaller than in other areas, and high demand for organic products gives farmers unusual bargaining power.

Whole Foods, whose chain includes 13 Canadian stores in Ontario and British Columbia, has posted seven straight quarterly sales declines at established stores and had overhauled its board of directors in the face of pressure from activist hedge fund Jana Partners.

“I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalize that business and, of course, it stems the criticism from all of these activist investors,” said Neil Saunders, managing director of GlobalData Retail in New York.

The deal is for $13.4 billion in cash and the remainder in debt.

The acquisition price implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S+P 500 Food Retail index.

Amazon and Whole Foods expect to close the deal during the second half of 2017.

The grocer will continue to operate stores under the Whole Foods Market brand and John Mackey will remain as its chief executive officer, the companies said. Whole Foods’ headquarters will still be in Austin.

Eyes on grocery shoppers

Amazon, started in Seattle in 1994 by former hedge fund manager Jeff Bezos, has grown into the world’s biggest diversified online retailer, with a market capitalization of nearly $500 billion.

It has expanded from a bookseller into a merchant of nearly all consumer products, as well as producing videos.

Both Amazon and Whole Foods cater to younger consumers including so-called millennials as well as those who are financially well off.

“Amazon could bring technology to all Whole Foods locations or it could absorb Whole Foods into Amazon Fresh. Either way, it’s good for consumers like myself,” said Di Wu, a New York resident in her early 30s who is a member of Amazon’s Prime fast-shipping service and also shops at Whole Foods at least twice a week.

“Amazon is known to drive down prices and make the shopping experience more efficient,” Wu said.

— Reporting for Reuters by Lauren Hirsch and Anya George Tharakan in Bangalore, Angela Moon in New York and Jeffrey Dastin in San Francisco. Writing by Peter Henderson and Greg Roumeliotis.

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The combination will help Post’s existing brands, which include Honey Bunches of Oats and Grape-Nuts, to expand overseas, while allowing for greater distribution of Weetabix and its Barbara’s brand in North America, the St. Louis-based company said on Tuesday.

The acquisition of Weetabix’s manufacturing and distribution assets in Europe should also allow Post to more easily digest other overseas businesses that might become available, in cereal and beyond, CEO Rob Vitale said.

“What this does is allow us to look at a broader array of opportunities,” Vitale told analysts, noting that Post regularly looks at several M+A opportunities at the same time.

The sale comes just five years after Chinese state-owned Bright Food took control of Weetabix in a deal that valued it at 1.2 billion pounds at the time of a major overseas push stretching from Australia to Israel.

The brand has struggled to grow significantly since as cold cereals in Western markets face more competition from breakfast bars and Greek yogurt, and consumers grow more concerned about how much sugar is in what they eat.

Vitale said Weetabix had 2016 revenue of 410 million pounds, which was not that much higher than in 2015. Looking ahead, he said Weetabix’s revenue would remain flat, with earnings being boosted by cost-savings from combining the businesses.

Weetabix, which has marketed its products in Canada since 1967, today has significant Canadian assets, mainly in the production plant it’s operated since 1978 at Cobourg, Ont., on Lake Ontario south of Peterborough.

The Cobourg plant today makes breakfast cereals under the Weetabix, Alpen and Barbara’s brands for sale in the North American market, as well as GrainShop, a high-fibre cereal sold only in Canada since 2003.

Some like it hot

In China, which had been central to Bright Food’s purchase, retail sales of cold cereal have nearly doubled over the past five years, but it remains a relatively small category, as most locals prefer hot breakfasts.

“It’s probably going to be a much better fit with Post,” said Liberum analyst Robert Waldschmidt.

Post has agreed in principle to establish a joint venture with Bright Food and Baring to manage the Weetabix China operations, which remain a very small part of the business.

The latest sale price, 1.4 billion pounds, is 11.7 times the 120 million pounds of adjusted annual EBITDA (earnings before interest, tax, depreciation and amortization) that Post said Weetabix will contribute before cost savings. It estimates those savings to reach 20 million pounds per year by the third full fiscal year after the deal is completed.

Vitale said the multiple was higher than its past deals, but said it was justified by Weetabix’s strong market share, future expansion opportunities, Post’s ability to fund it in cash and the favourable tax environment in Britain.

Still, Post shares were down two per cent in early trade in New York, underperforming the S+P 500 index, which was broadly flat.

Shopping for food brands

For Bright Food, which makes dairy products, candy and other foodstuffs, the sale does not mean an end to its international ambitions, Shanghai-based Bright spokesman Pan Jianjun said.

“This is a part of our internationalization strategy. Selling assets enables us to better expand. Going forward Bright will stick to our overseas push,” he said.

The sale would give Bright extra firepower should it want to bid for any other food assets currently on the block.

The global packaged food industry is in the midst of a wave of dealmaking, with giants Unilever and Reckitt Benckiser both selling multi-billion-dollar food assets.

Bright Food took control of Weetabix from private equity firm Lion Capital, which had held its stake for over a decade. Baring Private Equity Asia subsequently bought Lion’s remaining stake in 2015.

Post said the deal will immediately add to its adjusted operating profit margins and its free cash flow, excluding one-time transaction expenses. It expects to fund the deal with cash on hand and borrowings under its existing credit facility.

Post also reported net sales for the second quarter of US$1.25 billion, a net loss of US$4 million and adjusted EBITDA of US$228 million. It affirmed its 2017 adjusted EBITDA of US$920 million to $950 million, excluding any contribution from Weetabix.

— Reporting for Reuters by Martinne Geller in London, Adam Jourdan in Shanghai and Lauren Hirsch in New York; additional reporting by Parikshit Mishra in Bangalore.

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The deal, which will likely value Popeyes at more than US$1.7 billion, is a bet by Oakville, Ont.-based Restaurant Brands that it can use its international reach to introduce Popeyes’ Louisiana-style fried chicken and buttermilk biscuits to more diners globally.

It also represents a small consolation prize for Restaurant Brands shareholder 3G Capital, which lost a US$143 billion bid this week to merge its biggest holding, food conglomerate Kraft Heinz, with consumer products firm Unilever.

A deal could be announced as early as this week, the people said, asking not to be identified because the negotiations are confidential. Restaurant Brands did not respond immediately to a request for comment, while Popeyes decline to comment.

Popeyes, whose fans include pop singer Beyonce, began 45 years ago as a Southern-fried “Chicken on the Run” restaurant in a New Orleans suburb. It has since expanded to more than 2,000 restaurants, of which 1,600 are in the U.S.

In Canada, Popeyes operates about 100 outlets, nearly all in Ontario, and began expanding last fall into the Edmonton and Calgary markets.

The company has benefited from strong customer loyalty, as well as from a restaurant refurbishment program.

Chicken accounts for about 10 per cent of the fast-food industry, according to data service IBISWorld, and Popeyes’ market share is growing. The largest brands in the sector include privately held Chick-fil-A and Yum! Brands’ KFC.

Private equity firm 3G Capital, which is controlled by Brazilian billionaire Jorge Paulo Lemann, owns about 43 per cent of the voting shares in Restaurant Brands. 3G Capital has made a name by acquiring major U.S. consumer companies including Kraft Heinz.

Restaurant Brands was formed in 2014, when 3G Capital-backed Burger King acquired Canadian coffee and doughnut chain Tim Hortons Inc for US$11 billion.

3G Capital’s long-time partner, Warren Buffett’s Berkshire Hathaway, committed US$3 billion of preferred equity to finance that deal.

— Reporting for Reuters by Lauren Hirsch and Greg Roumeliotis.

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3G made its name in corporate America by orchestrating large debt-laden acquisitions and then slashing costs dramatically to juice profits. Using a strategy called zero-based budgeting, its managers must justify all expenses, from pencils to forklifts.

Its investment approach has attracted backers ranging from billionaire investor Warren Buffett, who has helped bankroll all four major 3G deals, to celebrities such as supermodel Gisele Bundchen and tennis champion Roger Federer, who invested in 3G’s latest approximately $10 billion fund (all figures US$).

This relentless focus on costs, however, may end up making Kraft’s pursuit of Unilever more difficult. In rebuffing Kraft’s bid publicly on Friday, Unilever cited “strategic” in addition to financial reasons.

While sources told Reuters that Kraft believes that investing in innovation would be an important part of the combined company, analysts have begun to question whether 3G’s operational approach hinders Kraft’s ability to grow over the long term.

“We can understand how some investors could wonder if Kraft’s efficiency-centric model is as sustainable as many have believed,” Barclays analysts said earlier this month.

Kraft’s sales were down 3.8 per cent to $6.86 billion in the fourth quarter of 2016. Kraft has attributed the decline in sales to a pruning of its portfolio, as it weeds out non-profitable products. It sees tight operational management as perfectly compatible with sales growth.

London- and Rotterdam-based Unilever — whose food brands in Canada include Becel margarine, Ben and Jerry’s ice cream, Knorr soups, Lipton tea and Hellmann’s mayonnaise — defines itself as a business “making sustainable living commonplace.”

This means putting money with an eye beyond the immediate bottom line, such as products with low environmental impact and resources toward bringing safe water to under-served regions.

“(The rebuff of Kraft) makes us also wonder if Unilever’s focus on sustainability might make it very resistant to any further approach from Kraft,” said Royal Bank of Canada analyst David Palmer.

Adding to Kraft’s challenges, the U.S. consumer food company will need to either integrate or find other options for Unilever’s household and personal care (HPC) business, which makes products such as toothpaste, soaps and detergents.

“It seems plausible that the HPC piece of (Unilever) then becomes a merger partner for something 3G might do on its own in HP. In other words, this could be part one of a huge two-step process,” said Don Bilson, head of research at event-driven research firm Gordon Haskett.

Kraft, Unilever and 3G Capital declined to comment.

Management philosophy brewed at Anheuser Busch

Co-founded by Brazilian billionaire financier Jorge Paulo Lemann, 3G combined Kraft and H.J. Heinz Co in 2015 to create a company that now has a $112 billion market capitalization, and combined Burger King and Tim Hortons in 2014 in a $11 billion deal.

The 3G management philosophy was developed by Lemann and Brazilian investment bankers Marcel Herrmann Telles and Carlos Alberto Sicupira, and pioneered at Budweiser brewer Anheuser Busch InBev, the world’s biggest brewer, which they helped create through a series of big mergers.

Lemann, Telles and Alberto Sicupira made their mark at Banco Garantia, the investment bank they founded in Brazil in the 1970s. After selling it to Credit Suisse Group AG in 1998, they formed private equity firm 3G to invest in U.S. consumer names.

After 3G teamed up with billionaire Buffett to buy Heinz in 2013, they closed six factories and cut 7,000 jobs in 18 months. Operating margins jumped from 18 per cent to 26 per cent.

Lemann, Brazil’s richest man and a former tennis pro, once served on the board of Gillette, where he met Buffett, who has partnered with Lemann on Heinz and Kraft and has said he would like to do more deals.

While 3G is often seen as extreme — at Heinz they limited employee use of company printers to 200 pages per month, requiring double-sided printing — zero-based budgeting has been adopted elsewhere, such as at Oreo cookie maker Mondelez International.

— Reporting for Reuters by Michael Flaherty and Lauren Hirsch in New York.

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An IPO of Toronto-based Canada Goose would demonstrate the explosive growth the company has experienced, following its transition from selling jackets primarily to adventurers on expeditions to shoppers in more than 50 countries, eager to pay $1,000 for warm, high-end coats.

Canada Goose could not be immediately be reached for comment. Its majority owner, private equity firm Bain Capital, declined comment.

Canada Goose, which started in a small warehouse in 1957, sold a majority stake in 2013 to Bain for an undisclosed amount, to help meet its growth ambitions.

Under Bain’s ownership, the company achieved double-digit sales growth in 2014, partially driven by international demand, CEO Dani Reiss told Reuters at the time.

The company, which last year opened new manufacturing plants in Winnipeg and Toronto, announced plans in May to open its first stand-alone retail stores in Toronto and New York City this fall.

The down used in Canada Goose coats is a byproduct of the poultry industry, with most of it sourced from Hutterite farmers who raise free-range flocks in the Canadian Prairies. Many of the other jacket components, such as the fabric, are globally sourced.

The Wall Street Journal first reported news of the IPO plans earlier on Friday.

— Reporting for Reuters by Lauren Hirsch in New York.

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San Antonio-based CST owns and operates convenience stores and gas stations in Canada and the U.S., and it controls the general partner of gas station company CrossAmerica Partners LP.

CST declined to comment.

In a statement Tuesday, Couche-Tard said it is in discussions “with third parties regarding possible business transactions.

“No formal agreements have been reached,” it added.

Laval, Que.-based Couche-Tard’s shares closed up 3.1 per cent, while CST’s stock ended the day 6.3 per cent higher.

The move highlights the level of consolidation in the convenience store sector and reinforces Couche-Tard as one of the most acquisitive players in the industry.

CST’s operations in Canada cover over 870 retail sites, mainly under the Corner Store and Depanneur du Coin brands, in Ontario, Quebec and Atlantic Canada.

Its Canadian stores’ offerings include standard convenience-store snacks and beverages and, in many cases, market sections offering sandwiches, salads and fresh produce.

Couche-Tard’s operations in Canada, meanwhile, are under the Couche-Tard, Mac’s and Circle K brands. The company operates over 1,400 stores in 10 provinces and the Northwest Territories and supplies almost 400 affiliated stores.

The news comes about two months after Reuters reported that Couche-Tard and Japan’s Seven + i Holdings Co. Ltd. had submitted offers to acquire CST.

The Wall Street Journal first reported that Couche-Tard was close to buying CST.

— Reporting for Reuters by Lauren Hirsch; writing by John Tilak. Includes files from AGCanada.com Network staff.

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Canadian hedge fund West Face Capital, which pushed SNC-Lavalin to sell its AltaLink business for about $3.1 billion in 2014, also wants SunOpta to look at board or management changes if sales don’t materialize, said the sources who spoke on condition of anonymity.

West Face’s move comes as SunOpta, whose brands include Nature’s Finest and Sunrich Naturals, has received interest from private equity firms, said two sources familiar with the situation.

While some of Toronto-based West Face’s demands are similar to Tourbillon’s, the two hedge funds are not acting in concert, the sources said.

West Face, SunOpta’s third biggest shareholder with a more than eight per cent stake, began the push about a year ago but has kept it private, one source said. Tourbillon, SunOpta’s largest stakeholder, went public with a May 27 letter to the board and chief executive officer.

SunOpta and West Face declined to comment.

Investors have been disappointed with SunOpta’s share price, which is down nearly 48 per cent over the past year. Some shareholders are concerned about the debt level, the integration of acquisitions and SunOpta’s sluggish performance in the high-growth organic foods market, the sources said.

After the Reuters report, SunOpta shares shot up as much as 6.3 per cent to $7.10 before easing to $6.92. Before the report, the stock was down about two per cent.

Last month, SunOpta’s board hired investment bank Rothschild Inc and law firm Davies Ward Phillips & Vineberg LLP to advise on strategic options and said it was in talks with its biggest shareholders.

SunOpta’s debt jumped to $482.8 million in 2015 from $83 million a year earlier after the acquisitions of Citrusource, Niagara Natural and Sunrise Growers.

A sale at less than $8 per share is unlikely to be acceptable to some of the major shareholders, one source said, adding that an asset sale was more likely in the near term.

The stock was down 2.1 per cent at $6.54 on Monday.

SunOpta set ambitious goals in April for gross margin and sales, including raising its overall gross margin to between 14 per cent to 16 per cent within three to five years from the current 11 per cent, said Eric Gottlieb, an analyst at D.A. Davidson & Co.

“They’ve made all these promises throughout the years, and they haven’t come through,” he said. Now the shareholders’ approach is, ‘let me see you do it,'” he added.

A strategic buyer, such as grain handler Archer Daniels Midland Co, the food processor and commodities trader, or Bunge Ltd, the agribusiness group, may be interested in buying SunOpta for its ingredient sourcing segment and then sell its consumer products division, Gottlieb said.

ADM declined to comment. Bunge could not be reached immediately for comment.

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Privately-held Mastronardi has hired Bank of Montreal (BMO) to run an auction process, the people said this week, asking not to be identified because the matter is confidential.

Mastronardi has annual earnings before interest, taxes, depreciation and amortization (EBITDA) of around $88 million, one of the people added.

Mastronardi Produce and BMO did not respond to requests for comment.

A fourth generation, family-owned company, Mastronardi was founded in the 1940s by Umberto Mastronardi. The Kingsville, Ont.-based company utilizes greenhouse technology in its facilities and sells its products under the Sunset brand.

Other competitors in the space include Delta Produce, Village Farms International and Pacific Tomato Growers.

— Reporting for Reuters by Lauren Hirsch and Greg Roumeliotis in New York.

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The maker of Chef Boyardee and Slim Jim snacks, which last month announced it would exit its private label food business, also has hired Goldman Sachs Group to provide additional advice on the sale, the people said this week.

Representatives for ConAgra, Centerview and Goldman declined to comment.

ConAgra relied on Centerview and Bank of America for advice when it acquired Ralcorp in January 2013 for US$5.1 billion. Goldman advised Ralcorp alongside Barclays Plc.

At the time, the deal was viewed as a personal success for then-ConAgra CEO Gary Rodkin, who had pursued Ralcorp for more than a year and a half.

But Ralcorp, which makes private-label cereal, pasta, crackers, jams and jellies, syrups and frozen waffles, has been plagued with problems ranging from customer service issues to pricing concessions. Sales have fallen nearly six per cent in the past two years.

Ralcorp’s assets in Canada include waffle and pancake plants at Delta, B.C. and Brantford, Ont., and cracker plants at Kitchener and Georgetown, Ont., all acquired by Ralcorp in 2010.

Activist fund Jana Partners announced a 7.2 per cent stake in ConAgra last month and said it would push to nominate directors to the company’s board that supported its desire to exit the private label business.

ConAgra CEO Sean Connolly, who joined the company in April, has said the effort to fix Ralcorp was draining resources.

“We know that the inconsistency of our past performance is totally unacceptable,” Connolly said in an earnings call last month.

— Reporting for Reuters by Lauren Hirsch and Olivia Oran in New York. Includes files from AGCanada.com Network staff.

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