Business Valuation: Amazon and Whole Foods Market Merger Analysis

This case study provides a business valuation analysis of the merger between Amazon and Whole Foods Market, examining the strategic reasons behind the acquisition, the issues faced by Amazon, and actionable recommendations to improve the company's performance. The analysis highlights the intense competition in the retail market and how the merger aimed to diversify Amazon's product offerings and increase its market share in the organic food sector. The study further evaluates the impact of the merger on competitors and the overall competitive landscape, concluding with recommendations for Amazon to maintain its competitive edge and effectively manage its diversified business.

Running head: BUSINESS VALUATION
Business Valuation
Name of the Student:
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Author’s Note

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Executive Summary
The main purpose of this assessment is to select an area or concept which is related to finance
and apply the same on a basis of a company. The selected topic for my assessment is merger and
acquisition which is common nowadays in most of the companies. The selected case of merger
and acquisition which is considered in this assessment is of Amazon and Whole Food Market
which took place recently. The assessment will be showing the problems which are faced by
Amazon and how the management can minimize such problems. The assessment will also be
suggesting certain recommendations to tackle the issue which is faced by Amazon Online Retail
service provider.

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Table of Contents
Introduction......................................................................................................................................3
Issues faced by Amazon..................................................................................................................5
Actionable Recommendations.........................................................................................................9
Conclusion.....................................................................................................................................12
Reflective Assessment...................................................................................................................13
Reference.......................................................................................................................................14

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Introduction
The main purpose of this assessment is to analyze the elements which are related to
mergers and acquisitions which have taken place on the basis of a company. The assessment will
be focusing on the recent merger and acquisition which took place in the business of Amazon
and Whole Foods. In order to understand the elements and purpose which are associated with the
merger and acquisition, the first thing is to understand is the concept of Merger and acquisition.
Merger and Acquisition is a term which is used in businesses where a company takes over the
assets and ownership of another business (Ferris, Jayaraman and Sabherwal 2013). This is one of
the techniques which is used by businesses for various purposes such as meeting excessive
competition, strengthening the business or even for the purpose of establishing a superior
position in the market (Cartwright and Cooper 2014).
Overview of the Company
Amazon is an online retail website and cloud computing company which is based in the
United states. The company is known for its variety of products which the business offers to its
customers and the retail giants are known to be the largest internet-based retail operation site.
The performance of the business is measured by the revenue generated by the business and also
by the market capitalization of the business (Amazon.in. 2018). In addition to this, the business
of Amazon in terms of sales is second largest after Alibaba Group. The business of Amazon
started off initially as an online bookstore and the same then slowly diversified in full scale retail
business which is clear in present times.
Whole Food Market is a business which is engaged in the selling and distribution of
organic food to the general people of the area. The motive of the business is to provide natural

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food products which are without any added preservatives to its customers. The business was
merged and acquired by Amazon in 2017 and since then it plays the role of subsidiary of the
online retail giants.
Reasons for Merger and Acquisitions
The reasons due to which mergers and acquisitions takes place in a business are
explained below in details:
 Synergy: The term which is used with mergers and acquisition is synergy which means
the benefit which is available to business who have merged together (Trautwein 2013).
The basic reason for undertaking a merger agreement is to ensure that the combined
business can take advantage of the merger and will be able to improve the performance as
well as reducing the costs of the business (Rothaermel 2015). Normally the case which is
common is that businesses tend to merger with other businesses which have
complementary strengths and weaknesses.
 Diversification and Sharpening Business Focus: Most of the businesses undertake merger
and acquisition decisions when the business wants to further diversify the business and
also wants to penetrate new markets (Dutordoir, Roosenboom and Vasconcelos 2014).
This is also followed as a strategy of the company when the business wants to merger
with a company in order to remove the company from the competition so that the overall
profitability of the business is not affected.
 Growth: Another motive for businesses to achieve growth is by engaging in merger and
acquisition activities. Merger and Acquisition of a business enables the acquiring

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company to attain synergy which can bring about development and growth in the
business of the company (Garzella and Fiorentino 2014).
 Eliminating Competition: Another objective due to which businesses engages in merger
and acquisition activities is for eliminating potential competitors of the business. This is
an appropriate strategy which is for creating monopoly for the business and acquire as
much market shares as possible.
Issues faced by Amazon
As per the analysis of the market conditions and the competitiveness in the retail market,
the business of Amazon faces intense competition in various areas of business such as food
products, FMCG goods, clothes and other products as well. The annual report of the Amazon
company shows that the business has faced crisis which is in relation to intense competition.
Another problem which the business of Amazon has been facing in recent times is due to the
diversification and expansion strategy which brings about a strain in the effective management of
the company. Amazon offers a large variety of products in the online sales option which are
different types of products and it is usually the case in retail business that some products earns
profits while some of them are not much profitable as per the market analysis (Kansal and
Chandani 2014). Therefore, the management of the business needs to deal with the problems
which are mentioned above.
The issues which can faced by the company can be overcome with following the
strategies of merger and acquisition as which is seen in the merger and acquisition decision of
Amazon and Whole Food Market which provided the retail business an opportunity to penetrate
the market of organic food products. The annual report of Amazon company shows that the main

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concern for the business in recent times is due to the intense competition from the competitors of
retail industry. As per the market analysis of the retail industry, the level of competition in the
industry is quite evident as there are a lot of business who provide online retail services which is
same as the services which are provided by Amazon (Brakman et al. 2013). In addition to this,
there are also supermarkets like Walmart, Tesco who also provide the same variety of products
under one roof and this further adds to the level of competition which already exists in the
industry. The main competitors of Amazon as identified in the annual report of the company are
Walmart, Flipkart, Ebay which are also engaged in the business of retailing and providing all
sorts of goods to the customers.
The situation which is present in the retailing market is a scenario of perfect competition
where businesses needs to be distinctive and gain competitive edges in order to survive the
intense competition which is present in the market (Abbas et al. 2014). In earlier times, retail
markets especially a business which is sort of a supermarket provided all kinds of products to the
customers in one place as was in the case of Tesco and Walmart and this provides no chance for
the small retailers who offer one or two products. This shows the level of competition which the
retail industry has with the supermarkets acquiring the maximum market shares. However, with
the development of technology and e-commerce system, the level of competition has intensified
in the market. The online market facility which is known as e-commerce has created new
competitors and therefore, it is quite natural that the main problem which the management of
Amazon faces is related to the intense competition which is present in the market.
In the case of Amazon, the company was first started off as online book store option and
the company has come a far way from that position as is clear from the annual report of the
business. The company was founded by Jeff Bezos in 1994. As per the current scenario, Amazon

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is engaged in retail business, has a logistic network, has a business of book publishing, hardware
maker, cloud service provider and many other services as well. As per research which was
conducted to determine the efficiency of the business, a survey was conducted which revealed
that in the last five years, Amazon went head to head with 129 corporations around the world in
the retail sector for market dominance (Greve and Man Zhang 2017). The business is further
diversifying in new areas and offering new products to the customers which is related to fashion,
food and analytics. In addition to this, the business has also faced problems which are related to
antitrust scrutiny from the US regulators in relation to other competitors of the business. In other
countries as well, the online retail stores gives serious competition to local retail business and
thereby there is always threat of regulations which can be imposed on the business by the
government. An estimate shows that the business of Amazon takes about 23% of the annual
income of the US residents who are engaged in shopping online and the business also enjoys a
majority of market retail sales business in case of books.
As per the recent decision which the management of the Amazon ltd has taken regarding
the merging with Whole Food Market is for the sole purpose of further diversifying the products
of the business and also increasing the scope of the business. Therefore, the business has
effectively merged with Whole Food market in 2017. This shows the intention of the business to
keeping the diversification of the products applicable. The reason for diversification in the
Whole food market is due to the increase in demands of organic foods. The management of the
company is of the opinion that by merging with the Whole Food market, the merged business
will be able to produce a synergy effect so as to ensure that the business cyan gain the advantage
of attaining growth ands improve the costs which is associated with the business of producing
and selling of Whole Foods. The strategy as per the annual report of the company which is

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adopted is adapt or die strategy which states that the business needs to adapt as per the changing
business environment and competition in retail market. An article which was published shows
that the day in which Amazon acquired the business of Whole Food Market, the market valuation
of Amazon increased by almost $ 12 billion.
Figure 1: (Chart showing effect of the acquisition on the Grocery Market Share Price)
Source: (Cooper and Finkelstein 2014)
As per the above chart, the acquisition of Whole Food business by Amazon has greatly
impacted the share prices of other competitors who are present in the retail of grocery items. The
chart above shows the fall in the shares prices for companies like Walmart, Costco. The above
chart clearly shows the effect which a merger and acquisition can have on the competitive
pressures of the industry Piesse et al. 2013).

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Thus, from the above discussions it is clear that the main problem which is faced by the
business of Amazon is related to the intense competition which the business faces in the retail
industry and also with the overall management of the business.
Actionable Recommendations
As per the analysis of the case and annual reports of Amazon, the level of
competitiveness in the market is one of the major reasons due to which the overall profitability of
the business has been affected. The major problem which is faced by the business is due to the
intense competition which affects the sales of the company and also there is a problem which is
associated with the lack of effectiveness in the overall management of the company due to the
variety of products which are offered by the company. In addition to this, the management of the
company is focused towards the maximization policy which allows the business to focus on
increasing the overall level of sales of the business and not the profits. A graph which is shown
in figure 2 shows the overall relation between sales which is achieved by the business and also
profits of the business.

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Figure 2: (Chart showing relation between the sales and profits)
Source: (Lee 2013)
The above chart makes it clear that the management of Amazon is not much concerned
with the overall profitability of the business. The blue line shows the profitability of the business
and the red lines shows the sales which the business is able to generate from operations. The
overall business of Amazon does not follow the policy that puts too much emphasis on the
technological advancements and ensure that the selling function of the business is carried out by
the management itself so that effective risks can be identified and optimized by strategic
planning process. The above chart makes it clear that the business prioritizes the maximization of
sales and improving the revenues from the same instead of increasing the profitability. In
addition to this, its is also to be understood that the management of Amazon has often acquired
established businesses in retail industry. The main purpose of following such a strategy is to
ensure that the business can achieve synergy and competitive advantage in the respective

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markets. Due to the policies of the management of Amazon, the business can be regarded as a
monopoly in the retail business especially considering the online retail business of Amazon.
There have been instances where the management of Amazon Company has effectively
responded to competitive threats which can affect the business.
There was a case where Amazon lifted its minimum order for encouraging free shipping
for Non-Prime members by offering a price range of $ 35 to $ 49. Walmart in order to compete
with Amazon offered free two days shipping at $ 35. Following this move, the management of
Amazon again lowered the price to $ 34 in order to stay competitive in the business.
Another instance can be given of Diapers.com, where the management of Amazon
noticed that the sales of Diapers were falling due to the intense competition from Quidsi which
owned Diaper.com. The management took measures by first trying to buy out the business but
later switch to lower the prices of its products so as too stay competitive in the market. The
management of Amazon was later able to acquire the business of Quidsi for a lumpsum amount
of $ 545 million.
Another perfect examples which the business takes in order to control the competitive
pressure on the business is by following the sophisticated pricing algorithm which is used by the
management to analyze all the possible combinations. As per this, it is also shown that the
business prefers to sell the products itself rather than with a third-party vendor who are in some
cases the closest competitors of Amazon. The management of Amazon utilizes the algorithm to
estimate the price manipulations which can be done by the business.
However, there are still some areas where the management of Amazon can still bring
about changes which can help the business with the pressures which is associated with intense