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Amazon turns to debt markets to fund Whole Foods deal

Whole Foods Market2Amazon has announced its plan to fund the $US13.7 billion ($A17.5 billion) deal to buy the well-known grocer Whole Foods by turning to the debt markets.

Although the online retail giant has not yet commented on the exact amount it plans to raise, the credit ratings agency Moody’s said last Tuesday that the company is raising up to $US16 billion.

“Despite the increase in debt, the Whole Foods acquisition is an immediate credit positive for the company on a variety of fronts,” Moody’s analyst Charlie O’Shea said in a report last Monday. “Whole Foods provides Amazon with greater scale and a crucial brick-and-mortar presence in a segment where it has been trying to grow.”

“Amazon’s takeover does not solve all of Whole Foods’ woes; nor does it fix the broken elements of the proposition. However, it brings two immediate benefits. First, it removes investor scrutiny and pressure, something that allows Whole Foods the breathing space it needs to reinvent. Second, it will ensure that investment in the business continues, even against the backdrop of a deteriorating balance sheet,” commented Neil Saunders, managing director of GlobalData Retail to Inside Retail Asia.

The world’s largest online retailer plans to sell its $16 billion of unsecured bonds in seven parts, according to a finance insider source of Yahoo Finance. The article stated a 40-year security may yield 1.45 percentage points above Treasuries, a decrease from the initial talk of 1.6 percentage points to 1.65 percentage points. The sale is Amazon’s first bond market foray since 2014.

“You don’t want to own retail because of Amazon — this is the source of everyone’s problems,” said Matt Brill, money manager at Invesco Ltd. to Yahoo Finance. “You get the chance to buy the category killer.”

The major announcement last June has rattled the supermarket industry. Whole Foods is expected to reduce its grocery product pricing for its consumers. Bank of America Corp., Goldman Sachs Group Inc. and JPMorgan Chase & Co. are managing the bond sale, according to the finance insider source of Yahoo Finance. The bond sale has earned the online retail giant a credit upgrade from CreditSights.

“We are comfortable buying Amazon’s bonds across the entire curve given its strong operating trends and competitive position in both its e-commerce and cloud computing businesses,” analysts led by Jordan Chalfin said in a report.

Saunders said on Inside Retail Asia it was quite fortunate for Amazon to rescue Whole Foods at a time when it is “facing the prospect of several years of further decline and worsening financials.” He said as an independent company, it is an extremely challenging time for them.

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