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Amazon to buy Whole Foods Market in $13.7bn deal


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Takeover of organic food specialist marks new push into grocery market after launch of Fresh delivery service

Amazon, the worlds most powerful online retailer, has taken a giant stride into traditional retailing, spending $13.7bn (10.7bn) to take over organic food chain Whole Foods Market.

The all-cash deal could be game-changing for the traditional supermarket business. Amazon has long had ambitions to move into the grocery business and launched its food delivery service, Fresh, in the US 10 years ago. It introduced the service in the UK last year after signing a wholesale deal with British supermarket Morrisons.

Amazon is the fourth biggest business in the US and accounts for 43% of online sales there. Whole Foods, founded in 1980, has about 460 stores, including nine in the UK where it has operated since 2004.

Supermarket share prices in the US and Europe went into reverse after news of the deal, while Amazons stock rose 3.5%, taking it close to $1,000 a share. The online retailers founder and chief executive, Jeff Bezos, is close to overtaking Bill Gates as the richest person in the world.

Amazon share price graphic

Walmarts shares dived 6%, wiping about $13bn off the value of the worlds biggest retailer as the deal ramped up pressure on traditional chains already hit by a rapid change in shopping habits. Shares in the UKs biggest chain, Tesco, and Germanys Metro were also down about 6% each.

This deal is potentially terrifying for other grocers, said Neil Saunders from retail analysis firm GlobalData. Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant. Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat.

Amazon revenue graphic

Until now, Amazon has had a limited impact on the grocery market. In the US, it still only accounts for less than 0.5% of grocery spending, according to GlobalData.

It only began experimenting with its first bricks and mortar food store in its hometown of Seattle in December last year. Buying Whole Foods will give it a trusted brand and an established network of stores where a basket of goods can be efficiently picked and packed for home delivery in a range of new cities. It will also give shoppers the option of picking up goods ordered online.

Whole Foods revenue graphic

Bryan Roberts, an analyst at TCC Global, said the deal with Whole Foods suggested that Amazon could now look to buy supermarket chains in its major markets which include the UK, France and Germany. He said: This is planting a huge flag that Amazon is incredibly serious about become a significant grocer.

Analysts at Bernstein suggested Morrisons and Sainsburys were possible targets in the UK alongside Ahold Delhaize in the Netherlands and Frances Carrefour.

But Roberts said Amazon already operated partnerships with a number of regional supermarkets in the US as well as Morrisons in the UK and would not necessarily need to buy them out in order to expand. He said the deal was likely to be focused on acquiring access to Whole Foods brands, supply chain and distribution network to power the growth of its Amazon Fresh delivery service.

Some analysts expressed surprise at the tie-up between Amazon, which has traditionally focused on cut-price deals, and the upmarket Whole Foods, which is nicknamed Whole Paycheck in the US. Roberts said the two firms customer bases were likely to overlap substantially.

Bezos said: Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy. Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades theyre doing an amazing job and we want that to continue.

John Mackey, the Whole Foods co-founder and chief executive, said: This partnership presents an opportunity to maximise value for Whole Foods Markets shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.

Mackey will remain as chief executive and Whole Foods headquarters will stay in Austin, Texas.

Mackeys 0.03% stake in the business, which is listed on the Nasdaq stock market in the US, is worth just over $41m. He is likely to retain a stake in the business.

Whole Foods shares graphic

Whole Foods has had a huge influence on food retail in the US, bringing organic and health foods to the mainstream. But recently growth has stalled.

In February, it announced it would close nine stores in the US after six quarters of decling sales in a row.

The deal with Amazon comes days after Mackey attacked the hedge fund Jana Partners, which had acquired a 9% stake in the retailer. He described Jana as greedy bastards that would have to knock Daddy out if it wanted to take over the company.

Mackey said the business had changed because the more conventional, mainstream supermarkets have upped their game. He added: The world is very different today than it was five years ago.

Amazons move into the grocery market will pile on the pressure for traditional supermarkets around the world which have been affected by shoppers switching to online, smaller local stores and discounters such as Aldi and Lidl.

Lidl is opening its first stores in the US this week as part of a plan to open about 100 by the middle of next year, while Aldi is in the middle of a $3bn-plus expansion plan to take its total number of US stores to 2,000 by the end of next year. In the UK, the traditional big four supermarkets Tesco, Sainsburys, Asda and Morrisons have all lost market share in recent years to the rapidly expanding German chains.

Clive Black, a retail analyst at Shore Capital, said: Amazon is clearly getting into offline as well as online. It is not going to spend nearly $14bn and then close nearly 500 stores. This is going to cause an awful stir in the US and some of those waves will lap into the UK and beyond.

A good fit? How they measure up

Amazon

Roots Founded by Jeff Bezos in his Seattle garage in 1994. After spending a year building a website and sourcing stock, Amazon opens its virtual doors the following summer, billing itself as the Earths biggest book store with 1m books to choose from.

Value $477bn

Annual sales $142.6bn

Profits $2.6bn

Employs 341,400

Head office Seattle

Blue sky thinking Bezos is pouring his billions into his private spaceflight company, Blue Origin, developing rockets capable of shuttling the paying public into space.

Whole Foods

Roots College dropout John Mackey and his then girlfriend, Renee Lawson, scrape together $45,000 to open a natural foods store in Austin, Texas, in 1978. In 1980 they join forces with like-minded entrepreneurs Craig Weller and Mark Skiles to open the first Whole Foods Market.

Value $13.7bn

Annual sales $15.9bn

Profits $402m

Employs 60,000

Head office Austin, Texas

Blue sky thinking Mackey wrote Conscious Capitalism, which espouses a business philosophy that is good for suppliers, staff and communities as well as shareholders. A long-term vegan, he more recently co-wrote The Whole Foods Diet, which promotes the health benefits of veganism.

Read more: https://www.theguardian.com/business/2017/jun/16/amazon-buy-whole-foods-market-organic-food-fresh


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Wall Street stocks rise after Trump’s corporate tax cut promises


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Dow Jones, S&P 500 and Nasdaq reach fresh highs as investors bet on spending spree by new administration

President Donald Trump has helped drive up stock markets on Wall Street and in London to new highs, after he promised corporate tax cuts and a spending splurge on infrastructure projects to boost the economy.

The Dow Jones index, the S&P 500 and the Nasdaq index of technology stocks reached fresh highs on Wednesday, while the FTSE in London also hit a new record.

The Dow Jones surpassed 21,000 for the first time to reach 21,130, while FTSE 100 jumped almost 120 points to 7,382 on the day and more than 1,100 points higher or 18% on the same month a year ago.

Exchanges in Spain, Germany and France also saw steep rises in the value of listed shares as investors bet on a spending spree by the new Trump administration filtering out to increase the profits of large corporations across Europe.

In his most measured speech to date, Trump told Congress he would bring back to life dying industries and crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports and railways gleaming across our very, very beautiful land.

He added: My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone. It will be a big, big cut. At the same time, we will provide massive tax relief for the middle class.

The dollar jumped to a seven-week high on the expectations of a fresh stimulus from Washington and news that the US manufacturing sector maintained its recent strong run of expansion, pushing the pound down more than a cent to $1.23.

David Cheetham, chief market analyst at online trader XTB said Trumps speech was the main trigger for the strong rally on Wall Street and especially his commitment to tax reform and $1 trillion [810bn] of infrastructure spending.

But Mark Dampier, head of researchat Hargreaves Lansdown, said figures showing the underlying strength of the US economy provided the markets with most of their momentum. He said US savers had huge sums of cash, but had been waiting for good news from the economy before investing. People have been holding off and a lot of cash has been sitting on the sidelines. Now that cash is being put to work and pushing the market up, he said.

Banking stocks were among the biggest risers alongside defence contractors and firms in a position to benefit from rising infrastructure spending, like the construction and mining equipment maker Caterpillar, which has seen a near-60% rise in its share price over the last year. The UK banking index rose 1.6% as Standard Chartered, HSBC and Barclays gained between 1.5% and 2.3%.

Miners helped the FTSE 100 as copper climbed to its highest level in nearly a week, on concerns about a shortage of supply and an upturn in manufacturing growth in top metals user China. Prices of other major metals such as aluminium, nickel and zinc were also higher.

The strength of the US economy also raised the prospect of an early interest rate rise, possibly following the Federal Reserves meeting later this month.

New York Fed president, William Dudley, an influential figure on the central banks open market committee and close ally of chair, Janet Yellen, said the case for tightening monetary policy has become a lot more compelling.

In fact, prospects of significant fiscal spending could push more Fed members to the hawkish camp, said Ipek Ozkardeskaya, analyst at London Capital Group, adding that traders were in a hurry to readjust Fed expectations.

Read more: https://www.theguardian.com/business/2017/mar/01/wall-street-donald-trump-corporate-tax-dow-jones-nasdaq


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Even Trump’s Twitter binges aren’t enough to make it worth $11bn | Nils Pratley

Twitter chief says he is proud daily usage is rising, but revenues just fell and profits are nowhere to be seen

As Jack Dorsey, the Twitter chief executive, said he was proud to report a 14% increase in daily usage of the social media service, the shares moved higher. Its hard to understand why. Quarterly revenues fell by 8% to $548m (427m), the first time they have dropped since Twitter became a public company in 2013. Meanwhile, profits are nowhere to be seen. In the first quarter, the company lost $62m, an $18m improvement on a year ago, thanks to cost cutting, but hardly justification for a stock market value of $11bn less than it was, yet still substantial.

While we continue to face revenue headwinds, we believe that executing on our plan and growing our audience should result in positive revenue growth over the long term, Dorsey said. The plan is probably the only one worth backing: get the audience up and hope revenues follow. But the current breakdown in the relationship between audience and revenues suggests Twitters clout with advertisers is fading fast.

Maybe it is being outgunned by Facebook and Google, with their vastly greater audiences and budgets. Or perhaps Twitter, despite Dorseys many modifications, is simply less suited to commercial messages. If so, even Donald Trumps tweeting flurries, which boost the audience statistics, wont bring salvation or a reason to value an 11-year-old company making a loss so highly.

GSKs new chief takes on the perennial question

Emma Walmsleys first big call as chief executive of GlaxoSmithKline was easy to make and correct: she ruled out a breakup and committed herself to a corporate structure that houses complex pharmaceuticals, vaccines and consumer products such as toothpaste and Horlicks under one roof.

In truth, nobody expected any other decision. Walmsley was an internal appointment, blessed by her predecessor Sir Andrew Witty. He spent ages deflecting calls for GSK to do the splits and she used to run the consumer division. Still, theres no harm in Walmsley addressing the perennial question, as she called it, in her first month in charge.

Like Witty, she argued that reliable cashflows from vaccines and consumer products are a natural counterweight to the higher risk and more volatile business of developing pharmaceutical drugs. And she agreed that there are benefits from being able to switch prescription medicines to the consumer category when patents expire. Neither argument is 100% convincing in itself, but both are more persuasive than a disruptive separation in which the only guaranteed winners would be investment bankers and lawyers.

There were no major fireworks, then, which may explain why the shares were the biggest fallers in the FTSE 100, down 2%, despite first-quarter figures that showed revenue and profits marginally ahead of City forecasts. But Walmsley was clearly signalling a shakeup of some sort in pharmaceuticals with her pointed criticism that GSK has sometimes pursued interesting drugs that lack sufficient commercial potential. Some programmes may be dropped or shoved into partnerships.

Until full details are published in July, its hard to tell whether the plan represents a tweak or a serious reform. But the markets yawn seems odd. A new CEO who talks about disciplined choices to make the labs more commercial usually gets applause from investors.

The Lloyds investigation is welcome, but a mess

It is understandable that Lloyds Banking Group feels the need to answer definitively the charge that its board and executives were complacent about fraud at the Reading branch of HBOS.

The bank has appointed Dame Linda Dobbs, a retired high court judge, to examine whether Lloyds handled the matter properly and met its reporting obligations after buying HBOS in 2009. The fraud, for which six people were jailed in February, ran from 2003 to 2007, but victims have long argued that Lloyds wouldnt listen to their complaints after the takeover. That allegation is serious, and an investigation is overdue.

Everybody happy then? Not really. The natural investigator is the Financial Conduct Authority, which is supposedly on the job. The regulators inquiry into HBOS Reading, which was suspended in 2013 when Thames Valley police leapt into action, reopened last month. The primary focus may be on what HBOS did under its own steam, but Lloyds actions after it bought the ailing lender will also be under the microscope.

Indeed, Lloyds will not be allowed to publish the Dobbs report or any of its findings until the FCA says so. Put another way, Lloyds has launched an independent inquiry into itself that wont be regarded as independent or credible until the regulator allows. Its good that this affair is getting the attention it deserves, but the process is a mess.

Read more: https://www.theguardian.com/business/nils-pratley-on-finance/2017/apr/26/twitter-quarterly-revenues-profits-jack-dorsey-donald-trump-gsk-lloyds