Will other buyers bid against Amazon for Whole Foods?

There are some interesting reports this morning in the follow up to Amazon's massive bid for Whole Foods - see Geoff's blog about that story. The takeover would allow Amazon quickly to establish a strong foothold in the US grocery market (with a presence in Canada and the UK as well). Amazon offered $42 per share to Whole Foods owners, but yesterday the stock market speculators pushed the share value to $43.22 as there were expectations that rival buyers might come in with a counter-offer above Amazon's.

The suggestion in the FT is that the likes of Walmart might feel compelled to bid for Whole Foods in order to keep Amazon out of the market and prevent the disruption (ie price war) that they would provoke. The paper quotes Karen Short, an analyst at Barclays, saying "Many will do anything to either make this acquisition more costly [for Amazon], or prevent the asset from landing in [Amazon’s] lap” - although others question whether anyone would fancy entering a bidding war against Amazon, given their massive resources and determination to diversify. And it is also worth noting that if Whole Foods were now to break off the deal and sell to another buyer, they would have to pay Amazon $400mn as a 'break up fee'. 

The grocery market is much less concentrated in the US than in the UK, with the top ten retailers holding only 45% of the whole market. However, there are some elements of the interdependence in decision making that is typical of an oligopoly market. Profits are under great pressure as price competition means that the price of food eaten at home in America has dropped for 18 consecutive months as of May. There are plenty of reasons for rivals to fear the impact that Amazon might have on the market, and for using a bit of game theory to decide which is has the best pay-off - to allow Amazon to buy their way into the market, or to spend the money on out-bidding them to prevent that from happening. 

Watch this space!