Albertsons looking at Whole Foods: Report

Speculation as to the next move for both Albertsons and Whole Foods increased again Monday when a published report said Albertsons was exploring a takeover of its natural/organic rival, and that Whole Foods had engaged a financial advisor to explore a possibility of a sale.

The story, published in the Financial Times, was based on anonymous sources that said Albertsons had discussed with its bankers the possibility of a Whole Foods takeover. A separate source, which the report described as “close to the company,” said Whole Foods has engaged the investment bank Evercore to explore its strategic alternatives including a potential sale.

If accurate, the report would indicate activist investors who disclosed a stake in Whole Foods only two weeks before may have already prompted action — from both Whole Foods and potential suitors. As previously reported, Jana Partners’ 13-D disclosure included an agenda of concerns it intended to raise with Whole Foods’ management, one of which was initiating a review of strategic alternatives, “particularly in light of [its] apparent unwillingness to engage in discussions with third parties regarding such alternatives.”

A spokesman for Evercore declined comment to SN. Whole Foods also declined comment.

For Albertsons the reported interest in Whole Foods follows a Bloomberg report last month that said it was exploring a takeover of Whole Foods’ smaller rival, Sprouts Farmers Market. On Monday, the Financial Times report said Sprouts-Albertsons talks have not proceeded, but it was unclear if the subsequent Jana disclosure may have prompted that.

An Albertsons spokeswoman declined comment.

Financial analyst Edward Kelly of Credit Suisse late last week in a research note argued for the value of Kroger as a potential acquirer of Whole Foods but acknowledged a Whole Foods auction would likely draw interest from other traditional food retailers.

Stock in Whole Foods shot up suddenly following the publication of the Financial Times story. It has added more than $1.7 billion in enterprise value since the Jana disclosure April 10.

Albertsons, controlled by Cerberus Capital Management, has aggressively grown by acquisition in recent years but has unsuccessfully sought for a public offering on the New York Stock Exchange where it could raise money to pay down debts. Some analysts have raised the possibility that acquiring a public company could help Albertsons get onto the markets.

Whole Foods has seen comparable-store sales under pressure as conventional retailers have gained greater control of the fast-growing market for natural and organic foods, but maintains attractive productivity and profits. Both Albertsons and Kroger in the meantime have seen their sales slide as they deal with effects of food deflation and increasing price competition from discounters.