REUTERS: Whole Foods Market Inc shares rose on Monday for the second straight trading session after Amazon.com Inc announced plans to buy the upscale grocer, with investors betting that rivals could step in to create a bidding war.
Despite that possibility, Amazon shares also gained as Wall Street analysts lauded the proposed US$42-per-share deal and bet that the company would prevail in any bidding battle.
Whole Foods shares rose as much as 2.2 percent on Monday - suggesting hopes the company might fetch a higher price - and were still up 1.3 percent at US$43.25 in afternoon trading. Amazon shares rose as much 3 percent and were still up 0.6 percent at US$993.17.
“Every grocery store out there now is having a conversation about how much they can afford to spend to keep Amazon out of the space,” said Brian Culpepper, a portfolio manager at James Advantage funds.
Culpepper, who owns Kroger Co shares, said Kroger is the company would be most likely improve Whole Foods’ efficiency, but that it would have difficulty matching Amazon’s cash offer.
Kroger shares were up 1.3 percent at US$22.59 on Monday afternoon.
“Kroger would have to pay in stock, and their stock has been hurting,” giving them less leverage to get into a protracted bidding war with Amazon, Culpepper said.
Barclays analyst Karen Short raised her Whole Foods price target to US$48 from US$38 and upgraded the stock to overweight from equal-weight, citing the possibility of counterbids.
"Many will do anything to either make this acquisition more costly for Amazon, or prevent the asset from landing in Amazon's lap," Short wrote in a note to clients.
A US$48-a-share price tag would be more than reasonable for a fellow retailer that could eliminate overhead at Whole Foods, Short said, while adding that very few companies could outbid Amazon.
Amazon's offer of US$13.7 billion, representing a multiple of 10 times earnings before interest, tax, depreciation and amortization, could possibly be raised to 11 or 12 times, according to Kevin Dreyer, co-chief investment officer at Gabelli Funds, which holds Whole Foods shares.
"Fourteen billion is a big number but it’s not a number where there’s no other buyer," said Dreyer. "Others could certainly look at this and sharpen their pencils."
Wal-Mart Stores Inc could have sufficiently deep pockets to make a counter bid and other grocery rivals such as Kroger or Albertsons Cos Inc would have the motivation, he said.
(Reporting by Sinead Carew and David Randall in New York; Editing by Lisa Von Ahn and Matthew Lewis)