Hello, Friends — I don’t have any major updates for you this week, other than the “Holy cow!” news this morning that Amazon (AMZN) is buying Whole Foods (WFM). That will be immediately accretive to earnings at Amazon (meaning their earnings per share will rise), but no one cares about Amazon earnings so I guess we’ll see what happens. Will it matter if they go from 50X 2019 earnings to 45X 2019 earnings? Probably not… and as for immediate impact, this deal, if completed today, would change Amazon’s trailing PE from 185 to 160.
This could become a brilliant way for Bezos to build out Amazon’s grocery business and further extend the Amazon brand into “bricks and mortar” retail, and probably every single Whole Foods shopper is already an Amazon prime member, so it will be an interesting merger to watch. There will almost certainly be strategic integrations at some level, even though the talk so far is about Whole Foods remaining independently managed and run by John Mackey out of Austin. And given the very small size of the deal relative to Amazon’s business, and the fact that Amazon’s paying with cash, there’s very little downside risk.
This doesn’t make me change my mind about Amazon, which I already like and own because of the still ridiculous future growth potential (even as I hold my nose a little when I think about the valuation)… but if something about this deal brings down Amazon’s share price, perhaps I’ll eventually add to that position.
That’s certainly not happening so far, Amazon and Whole Foods are both higher in early trading today (it’s a cash deal at $42 a share, just FYI, and presumably there won’t be any problem getting the deal through unless another bidder appears, which seems unlikely but not impossible).
… so there’s nothing really to add on the portfolio front this week and no updates to the Real Money Portfolio, after a few weeks of lots of buy/sell action for me… which means we’ll spend our Friday File looking into a new teaser pitch that a bunch of you have asked me about.
It’s from Ernie Tremblay, who some might remember well from a slew of disastrously unsuccessful and heavily promoted teaser ads last year like Auris Medical, Transenterix, Cempra and Aralez… though he did, to be fair, tease a few in prior years that ended ...