So, today Amazon announced it is buying Whole Foods for $13 billion. What’s supposed to happen in a deal like this is the acquirer’s stock (Amazon) goes down and other food company stocks go up in anticipation that more takeovers will follow.
But this is the world of Amazon, so the opposite happened. Amazon stock soared and the other food retailers crashed hard. Why? Well, Amazon makes no money so buying a company that makes money, even a food retailer, will be accretive to Amazon. Here’s the math. Amazon has an absolutely stupid P/E ratio of 188. Whole Foods has a P/E of 34. So, Whole Foods’ earnings are worth 5.5 times as much to Amazon as they are to Whole Foods. Before the takeover, Whole Foods was basically a $10 billion company. In Amazon, assuming it stays the same (no cost reduction synergies and no increase in business after the takeover) Whole Foods is a $55 billion company.
Meanwhile, other food retailers are crushed in the market because now they have to compete with the world’s biggest price and profit discounter.
Stupid or what?
Here’s the deal. In a goofy mania, the biggest stock market bubble of all time, and with a really hot promoter (Jeff Bezos), Amazon doesn’t need to make money because its shareholders don’t require it to do so. Therefore, Amazon is able to prey on all those companies whose shareholders are old-fashioned enough to demand a profit.
Amazon is pushing hundreds of decent businesses into undeserved bankruptcy because, as the world’s best stock promo, it gets unlimited free capital from the market. If Amazon had to compete in the real economy, it would have a P/E of 15, a stock price of less that $80 (not $1000) and it would not be buying out Whole Foods. This pisses me off because the result of this ridiculous valuation is that hundreds of thousands of people are losing their livelihoods.
So, dear reader, enjoy those free deliveries and too low prices from Amazon, but there will come a day when the shareholders of this company will wish they had never heard its name.