Deals

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Shopping at Whole Paycheck is so much better when someone else picks up the tab. Which is what you, dear investor, effectively did for Amazon.com Inc. when it decided to buy Whole Food Markets Inc.

Amazon is paying $13.6 billion in cash and assumed debt for the never knowingly underpriced grocery chain. Investors responded by bidding up Amazon's stock on Friday -- to the tune of $14.1 billion as of mid-afternoon trading.

Even in these relatively spirited times, that is unusual. Sure, some acquirers do get rewarded with a higher stock price when the market buys into the win-win thesis. But Jeff Bezos is getting special treatment here.

How special? Using the Bloomberg Terminal, I ran a screen of all-cash deals over the past decade where one listed U.S. company acquired another listed U.S. company for $10 billion dollars or more. I left out deals involving listed private-equity firms. Besides Amazon/Whole Foods, there have been 23 such deals.

Here's how the acquirer's market cap changed in the trading session after announcement relative to the transaction value:

Instant Reward
Amazon's market cap jumping by more than the entire value of Whole Foods in one day is unusual for cash takeovers between U.S. listed companies of this size
Source: Bloomberg, Bloomberg Gadfly analysis
Note: Change in acquirer's market cap relative to total announced transaction value in following trading session. Deals where U.S. listed company acquired another for $10 billion or more in cash, past 10 years.

As you can see, Amazon's reward is unusual. The closest rival is the takeover of Salix Pharmaceuticals Ltd., announced in 2015. Given the buyer was Valeant Pharmaceuticals International Inc., though, the less said about that one the better. Berkshire Hathaway Inc.'s buyout of NV Energy, announced in 2013, also ranks highly. Then again, if you invest in Warren Buffett, you want him to do deals.

It's more typical for the acquirer's value to drop on announcement of a deal, as shareholders award a slow clap to the management's ambition. In the list above, the average and median reaction was a 7 percent drop in the buyer's market cap.

It's good to be Jeff.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net