Amazon deal slams retailers as Dow edges to record

Amazon could try to use automation and data analysis to draw more customers to stores while helping Whole Foods cut costs and perhaps prices.

Freddy and Lisa Romero, who stopped to eat with daughter Annabella at the Newport News Whole Foods on Friday, regularly shops online with Amazon.

The deal could be "transformative", Moody's lead retail analyst Charlie O'Shea said, "not just for food retail, but for retail in general". Walmart, which has the largest share of the US food market, has been working on lowering prices, while Target has been struggling to turn around its grocery business.

Whole Foods' conversations with banks took place before the company was approached by Amazon, so Goldman was also vying for a role with Whole Foods. Over the course of the day, Whole Foods stock rose 28 percent to a high of $43.45. The company's headquarters will remain in Austin, Texas.

That's frustrated investors saddled with a drop of almost 43 percent from the start of 2014 through Thursday, while the rest of the stock market marched 32 percent higher to record heights.

Whole Foods gives Amazon an immediate physical grocery footprint and the ability to alleviate some of the supply chain problems it faced with Amazon Fresh, including perishable inventory and delivery services. That phenomenon was on display again with the Whole Foods deal.

Investors worry that Amazon, which has already won over hordes of shoppers of clothing, electronics and many other kinds of goods, wreaking havoc on department stores and other brick-and-mortar retailers, will do the same thing with groceries. This move is likely to bring more bad news for retailers who have endured many a sleepless night cursing Amazon and its influence on their business. But Whole Foods has lost market share to rivals Kroger Co, Wal-Mart Stores Inc, Costco Wholesale Corp and others that have elbowed into the natural and organic segment Whole Foods pioneered.

"Amazon has an opportunity to give Prime members automatic entry in a new Whole Foods benefits program", added Franson.

By adding Whole Foods to the mix, Amazon is building a brick-and-mortar tentpole that supports its overall e-commerce empire.

In the United Kingdom, where there are Whole Foods stores, sell-offs wiped out almost $2billion (£1.5billion) from the value of stocks at grocers Tesco, Sainsbury's and Marks & Spencer, according to This Is Money.

Whole Foods has been under pressure from activist investor Jana Partners to reignite its operations and unlock value.

The S&P 500 market capitalization loss for just 20 stocks in the retail and food sector was $37.7 billion by Friday afternoon, according to CNBC.

That doesn't mean that the share appreciation itself pays for the deal directly, as Amazon offered all cash in the transaction, but it shows how small the price is compared to Amazon's market value. Under the deal, Amazon will also assume Whole Foods' net debt.

The parties expect to close the deal during the second half of 2017.

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