It inspired Déjà vu
This isn’t the first time Jana Partners has made its presence felt in the industry. In September 2013, the group disclosed it had acquired 6.2% of the outstanding stock in another significant-but-struggling food retailer: Safeway. Jana at the time advocated that Safeway dispose of weaker assets like Dominick’s, pursue a spinoff of its gift card subsidiary more aggressively, “and may take other steps seeking to bring about changes to increase shareholder value.” That’s pretty much exactly what happened, culminating in the merger with Albertsons in 2015.
Bystanders have been trampled
News of the investment — and subsequent if unsubstantiated reports of interest in a possible strategic mergers that followed — have been great for Whole Foods stock but not so great for associated companies. The disclosure’s remarks about addressing Whole Foods’ distribution arrangements triggered a selloff in United Natural Foods Inc., Whole Foods’ primary wholesaler (the chart pictured illustrated the drop). And Sprouts Farmers Market, connected by sources to previous speculation on a potential Albertsons merger, took a similar dive when reports said Albertsons had broken off its talks and was interested instead in Whole Foods. Stock in Sprouts has since recovered, but UNFI is still trading below levels it was prior to the announcement.
Dream team assembled
It’s not unusual for an investor to propose board candidates, but hard to image a slate with a higher industry Q-rating than the team assembled by Jana. Its board candidates, who each made relatively modest investments in Whole Foods stock: well-known former Barclays and Lehman Bros. analyst Meredith Adler (pictured), former Harris Teeter CEO Tad Dickson and former Gap CEO Glenn Murphy were forwarded as potential board candidates; other investors included in the filing were Diane Dietz, a former Safeway EVP, and the well-known food writer Mark Bittman, each of whom inked a consulting agreement with Jana.
So much for “apparent unwillingness”
Jana, in its filing, urged Whole Foods and CEO John Mackey (pictured) to consider a strategic review of alternatives in light of what it called its “apparent unwillingness to engage in discussions with third parties regarding such alternatives.” But news this week indicates the retailer is willing, reportedly engaging the investment bank Evercore (an Evercore spokesman declined to confirm or comment). It is not immediately clear that Jana influenced this decision, but if it did, that was awful fast for an unwilling participant.
Now the fun begins
Depending on what develops with regards to Albertsons’ reported interest in a deal — and a price tag estimated at $14 billion won’t be easy given the parent company’s current debt — analysts would expect a bidding war could erupt, if only to drive the winner’s price up. Although many observers say Whole Foods’ structural challenges might be best worked out under private ownership, the potential to capture millions in synergies generally allow strategic acquirers to outbid them. It should be noted that although considered by some to be in need of a turnaround — Jana cited “chronic underperformance” — Whole Foods is in considerably better shape than The Fresh Market, which suffered some similar problems (high price perception, conventional competition, questionable expansion strategy) and still drew interest from conventional buyers, including Kroger, when it went on the block a year ago.