Whole Foods: Winners and Losers

By Richard Martin, 2-22-07

The $565 million purchase of Boulder-based Wild Oats by its larger rival, Whole Foods of Austin, Tex., is a good deal for Wild Oats investors, who will receive about a 23 percent premium on the 20-year-old natural grocer‘s share price. It’s a good deal for the natural-foods industry as a whole, which gets a titan capable of competing with the likes of Safeway and Wal-Mart, which have caught on to the healthy-eating trend in the last several years. It’s certainly a good deal for Whole Foods’ management, which gets rid of its peskiest rival.

It’s also good news for Boulder entrepreneurs, who’ve seen a raft of homegrown companies including SpectraLink Corp., Izze Beverage Co., McData Corp., and Abacus sell for sizable sums.

It’s not such a good deal for the likely-significant percentage of Wild Oats’ 1,100 Colorado employees who will lose their jobs. But who else wins and loses?

Somewhat lost in the extensive national and local coverage of the deal were one big winner and one potential big loser:

Winner: Grocery tycoon Ronald Burkle. The J. Paul Getty of the supermarket industry, Burkle owns Yucaipa Cos., the largest shareholder in Wild Oats. Burkle first started buying up Wild Oats stock about two years ago, as the natural-foods boom gathered steam around the country and Whole Foods, the largest chain in the arena, was enjoying a dazzling run on Wall Street. (Whole Foods stock has lost 39 percent of its value in the last year.)

When Wild Oat’s CEO and CFO both left last fall, Burkle installed a colleague, Gregory Mays, as interim CEO. Mays is also on the board of the Pathmark supermarket chain, another big Yucaipa holding. Whole Foods CEO John Mackey approached Wild Oats about a buyout shortly thereafter.

Based on the difference between the price at which he bought his Wild Oats holding, $10 per share, and the $18.50 sale price to Whole Foods, Burkle now stands to clear almost $45 million from the deal. Yucaipa has already said it will vote its 17.3-percent shares in favor of the buyout.

Loser: Twenty Ninth Street. The new upscale Boulder shopping center already houses Wild Oat’s corporate headquarters, which will now become a regional office for Whole Foods, according to spokeswoman Kate Lowery. Plans for the 40,000-square-foot flagship store in the Twenty Ninth complex, meanwhile, will almost certainly be canceled: The new store would be directly across the street from Whole Foods’ Boulder store, itself slated for a major renovation and expansion.

Lowery said a decision on the new Wild Oats store—where a job fair was held last weekend to fill 250 new positions—has not been made. Mays, however, has already said the “construction delays” will put back the opening of the new store.

Don’t bet on it ever getting built—and don’t underestimate the effect on Twenty Ninth Street, which now lacks an “anchor tenant” for its southwest corner.