A Whole Foods Market shareholder has filed a federal lawsuit seeking to halt Amazon Inc.’s proposed $13.7 billion acquisition of the Austin-based grocery chain, saying that the deal undervalues Whole Foods and is being made without sufficient transparency.
Shareholder Robert Riegel filed the law suit in U.S. District Court for the Western District of Texas. In it, he claims that Whole Foods’ proxy statement filed on July 7 is misleading and failed to disclose information important to stakeholders.
“The proxy statement states that, in connection with negotiating the merger agreement, Amazon had preliminary discussions with certain Whole Foods executive officers regarding Amazon's desire to retain such officers following the closing” the suit says. “However, the proxy fails to disclose the timing and nature of all communications regarding the future employment and/or benefits relating to Whole Foods management.”
The suit also claims that the proxy statement failed to disclose how the company calculated certain valuations.
The suit asks the court to block the acquisition and seeks class action status.
In an email, a Whole Foods spokesperson said the company has “nothing to add” regarding the suit.
After initially receiving an offer from Amazon for $41 per share, Whole Foods countered with an offer of $45 per share before the two sides settled on $42 per share, according to filings with the U.S. Securities and Exchange Commission. The merger was announced on June 16. On Thursday, Whole Foods shares closed at $41.96.
While the deal has been approved by both companies’ board of directors, it still has to be voted on by shareholders.
Before the merger deal was announced, Whole Foods had been under pressure from high-profile shareholders such as Jana Partners and Neuberger Berman over sluggish sales and a reported loss in customers.
In May, after closing several underperforming stores, the company replaced almost half of its board of directors while promising to improve technology, centralize its buying and begin a loyalty program at each of its U.S. stores.
In April, after viewing reports that Amazon had looked at acquiring Whole Foods about a year ago, Whole Foods representative contacted Amazon to meet regarding a potential partnership. Other companies had also been interested in acquiring the grocery chain, including “Company X,” which has been identified as Albertson’s in media reports.
As part of the deal, Seattle-based Amazon agreed to keep the Whole Foods name on the stores, and that John Mackey would remain as Whole Foods' CEO.
Founded in 1978, Whole Foods operates 465 stores – including six in Central Texas - and employs about 87,000 people. The acquisition deal -- which would be Amazon’s largest ever -- is expected to close near the end of the year, the companies have said.