Analyst: Kroger Should Outmuscle Amazon And Bid For Whole Foods

Amazon.com, Inc. (NASDAQ: AMZN)'s proposed acquisition of Whole Foods Market, Inc. (NASDAQ: WFM) implies the online retailer will pay $42 per share for the organic and natural grocer.

Shares of Whole Foods are trading nearly $1 higher than the take-out price, which implies some investors are expecting a bidding war.

In theory, any retailer whose business is selling food can try and outmuscle Amazon with the grand prize being Whole Foods, Barclays' food and staples analyst Karen Short was quoted by Fox Business as saying. This is especially true when considering that companies have "too much to lose not to bid."

Loop Capital Markets' Andrew Wolf agrees with Short and argued in a report that Kroger Co (NYSE: KR) should bid for Whole Foods as both a defensive and offensive play.

In terms of defense, acquiring Whole Foods is denying Amazon a direct path towards pushing into the grocery market, Wolf argued. On the other hand, acquiring Whole Foods makes Kroger "by far" the largest natural and organic retailer that can generate tremendous synergies -- even if it were to pay $50 per share.

In fact, at $50 per share Kroger's hypothetical acquisition of Whole Foods could be up to 25 cents per share accretive to its earnings. But Kroger would likely find it better to invest all of the synergies into lowering Whole Foods' prices as it did when it bought Harris Teeter.

If Kroger sits on the sidelines with a bid, the analyst isn't overly concerned with the new competitive landscape. An estimated 260 Kroger stores are located near a Whole Foods store which implies only a limited potential fall out if Whole Foods' business soars under Amazon's control, Wolf added.

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