Tag Archives: US news

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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Is Snapchat the new Facebook?


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As Snapchat plans the most eagerly anticipated technology IPO since its older rival floated in 2012, Rupert Neate examines the two companies striking similarities

Snapchat hopes its planned flotation in New York will value the five-year-old photo-sharing app company at up to $25bn (20bn) and turn its 26-year-old founder, Evan Spiegel, into the worlds youngest billionaire with a $5.5bn fortune. It is the most eagerly anticipated technology initial public offering (IPO) since Facebook floated in 2012 turning its then 28-year-old founder, Mark Zuckerberg, into the worlds richest man under 30. The similarities between Snap (the official name for the company that owns Snapchat) and Facebook are striking, and have got many financial analysts and advertising experts asking if Snapchat is the new Facebook.

How did they start?

Zuckerberg and Spiegel hit upon the ideas for their companies at university and then dropped out. Zuckerberg, a computer science major, began knocking up a website called Facemash, loosely based on Hot or Not, in his Harvard dorm room. The site evolved intoFacebook but not without a legal challenge from the Winklevoss twins, who sued Zuckerberg claiming he stole their idea.

Evan
Evan Spiegel could become the worlds youngest billionaire. Photograph: Jae C. Hong/AP

Snapchat was born out of banter between Spiegel and his Stanford fraternity brothers Frank Reginald Brown and Bobby Murphy. In 2011 the trio were discussing sexting and the need for a way to send pictures that disappeared.

As with Facebook, the genesis of the idea was disputed, and Brown sued Spiegel and the company. They settled out of court, with Spiegel, who was studying product design, and Murphy, a mathematics and computational science major, remaining majority shareholders with a 22.4% stake each.

How many users do they have?

Facebook had 900m users as it prepared for its 2012 flotation. Since then the social network has grown to 1.86bn monthly active users more than half the worlds population that has access to the internet. About 1.2bn check their Facebook accounts every day.

Snapchat has far fewer users, but the company claims they are much more engaged than Facebooks. Snapchat had 158m daily users at the last count. Two-thirds of them check the app every day and the average daily user visits the app 18 times a day, spending an average of 25-30 minutes a day sending snaps and watching snaps from their friends, celebrities and advertising brands.

Snapchat is only accessible via mobile phone. Snapchat claims to reach 41% of all 18- to 34-year-olds in the US each day.

How much are they worth?

Facebook has a market value of $373bn more than twice that of IBM. Facebook was valued at $104bn when it floated at $38 a share on the NYSE on 18 May 2012. Today the shares are changing hands at $131.

Facebook tried to buy Snapchat several times, and Spiegel has said Zuckerberg tried to force him to sell up. It was basically like, Were going to crush you, Spiegel told Forbes magazine. Spiegel rejected Zuckerbergs last $3bn takeover in November 2013. Facebook, which also owns Instagram, has since developed versions of 15 of Snapchats features.

Snaps IPO filings show the company is planning to float its shares at a level that would value the companyat $20-25bn.

How much control do the founders have?

Snapchats flotation is unusual. The company is not selling any voting shares, so the founders will controversially keep total control of the firm even after raising public money. Facebook has a voting structure that gives the founders far more rights than other shareholders.

How much money do they make?

Facebook made a profit of $10.2bn in 2016, up 177% on 2015. Its total advertising income was almost $27bn. But Facebook only turned its first profit in 2009.

Snap, which is spending a lot of money on expanding its user base, made a net loss of $515m in 2016 up on the $373m it lost in 2015.

Where does the income come from?

Both companies make their money from advertising at the expense of traditional advertising markets such as newspapers and TV.

Sir Martin Sorrell, chief executive of WPP, the worlds largest advertising company, has said his clients spent $1.7bn advertising on Facebook last year. That compares to $5bn WPP clients spent on Google ads, but is vastly more than the $90m spent on Snapchat.

Neil Campling, head of global technology research at Northern Trust Capital Markets, told CNBC: Snapchat is likely on a faster growth path than either Google or Facebook. Their opportunity is enormous and just beginning.

Snapchat has tried to differentiate itself from Facebook by not allowing adverts targeted directly at users interests or browsing history. I got an ad this morning for something I was thinking about buying yesterday, and its really annoying. We care about not being creepy, Spiegel said in 2015.

Facebooks advertising is sold entirely by computer program. Advertisers can visit ads.facebook.com, plug in payment information and create an advert. Those ads can be targeted as narrowly or broadly as the advertiser desires, and can be billed in a variety of ways, from paying a flat fee for every thousand views to payments per click, per like and more.

Where are they based?

Facebooks huge headquarters in Silicon Valleys Menlo Park has a green roof the size of seven American football pitches. The company employs more than 17,000 people across the world.

Read more: https://www.theguardian.com/media/2017/feb/03/is-snapchat-the-new-facebook


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Wall Street suffers worst day in months following Trump travel ban

The market is reacting negatively because of the uncertainty it creates Wall Streets fear gauge surges in biggest rise since 9 September

US investors had their worst day in more than three months on Monday, as President Donald Trumps orders to curb travel and immigration from some countries sparked falls in all the major stock markets.

Trump on Friday signed executive orders to suspend travel to the United States from seven Muslim-majority countries on grounds of national security, while also banning refugees from Syria.

Thousands of people rallied in major US cities and at airports in protest. Goldman Sachs, Nike and Starbucks were among the companies that did not support the ban.

The market is reacting negatively right now because of the uncertainty that it creates, said Robert Pavlik, chief market strategist at Boston Private Wealth. If it can pull more Republicans off of the presidents following and maybe weaken his strength in Congress then you start to wonder about the other initiatives that may not get passed.

US equities hit record highs following Trumps election in November, encouraged by his promise of tax cuts and simpler regulations. However, the potential risk of Trumps protectionist policies and the lack of clarity since he took office have dampened the enthusiasm.

The Dow, which soared 9.2% in the aftermath of Trumps election, has managed to gain only 1% after his inauguration on 20 January and fell below the historic high of 20,000 that it hit last week. It closed the day at 19971, down 0.6%, the S&P 500 also fell 0.6% and the Nasdaq Composite dropped 0.8% as the CBOE Volatility index or Wall Streets fear gauge surged 16%, its biggest rise since 9 September.

Trump also signed an executive order that would seek to pare back federal regulations by requiring agencies to cut two existing regulations for every new rule introduced. But the move failed to impress investors.

Five of the nine declining sectors of the S&P 500, including financials and technology, were down more than 1%. Utilities and consumer staples considered defensive plays were slightly higher.

Facebook and Apple, which are scheduled to report earnings this week, were the top drags on the S&P 500. Other technology stocks trading lower included Alphabet and Microsoft. Airline stocks, including American Airlines, United Continental and JetBlue, were also down.

Read more: https://www.theguardian.com/business/2017/jan/30/wall-street-stock-market-fall-trump-travel-ban