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Amazon threatened to kill its Whole Foods deal if the grocer started a bidding war

... or if the M&A talks leaked to the press.

Amazon CEO And Founder Of Blue Origin Jeff Bezos Speaks At Satellite Industry Conference Mark Wilson / Getty
Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

Amazon has long had a reputation as a hard-ball negotiator. It turns out its negotiations with Whole Foods leading up to its $13.7 billion acquisition agreement were no different, according to an SEC filing outlining a timeline of the talks between the two companies.

On May 23, Amazon made a written offer to acquire Whole Foods for $41 a share, less than a month after the first meeting between senior executives of the companies, the filing said.

Whole Foods came back with a counterproposal of $45 a share, which got Amazon to increase its offer to $42. But Amazon’s bankers from Goldman Sachs then “stressed several times” that the increase to $42 represented Amazon’s “best and final offer.”

Amazon’s bankers “also made it clear again ... that would disengage from its efforts to acquire the Company and pursue other alternatives and initiatives if the $42.00 per share price were not accepted,” the filing said, “and that expected that the Company would not approach other potential bidders while the Company was negotiating with”

Amazon also threatened it would walk away if the talks leaked to the press, which they did not.

Translation: $42 or nada.

According to the filing, Whole Foods’ board of directors believed that the hard line Amazon outlined was “highly credible” and also believed that Amazon “would likely have sought to acquire another industry participant” if Whole Foods declined the offer or sought other bids. The board also said the best bet to “obtaining a superior transaction would be to enter into the attractive transaction to which any potential third party bidders could then react.”

As a result, Whole Foods never went back to another unnamed suitor — referred to as “Company X” — that had presented Whole Foods with a merger idea that would work out to $35 to $40 a share for Whole Foods shareholders. (If you have an idea of who this suitor is, I’d be interested in hearing it.)

Whole Foods also did not engage with four private equity firms that had expressed initial separate interest in a potential leveraged buyout of the grocer. The Whole Foods board, according to the filing, was concerned that the talks might leak and also did not think the PE firms would be able to beat Amazon’s offer.

In the end, the $42-a-share offer represented a 27 percent premium to Whole Foods’ closing stock price on the day before the deal was announced.

Other bidders can still bring offers to Whole Foods between now and when the company’s shareholders vote on the deal. If that happens and Whole Foods accepts another offer, the grocer would have to pay Amazon a $400 million breakup fee.

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