Investors: Whole Foods, Amazon violated Securities Exchange in $13B deal

FILE - In this March 25, 2014, file photo, shows a Whole Foods store in Philadelphia. (AP Photo/Matt Rourke, File)

AUSTIN (KXAN) – A group of Whole Foods Market, Inc. investors is suing the Austin-based grocery retailer and its prospective buyer, Amazon.com, Inc. over the $13.7 billion buyout announced in June. In the deal, Amazon would acquire Whole Foods’ 456 stores and take over the organic foods retailer.

The class action suit alleges Whole Foods and Amazon violated two counts of the Securities Exchange Act and is asking the federal courts to put a stop the deal. The lawsuit also suggests the stockholders who are suing were not fully informed of Whole Foods’ decision to sell out.

The investors claim Whole Foods and its leadership left out important information regarding the company’s finances, essentially lying to the Securities and Exchange Commission about financial information required to be disclosed annually to the SEC. The suit claims Whole Foods “misled” shareholders with the information the company submitted to the SEC.

The suit was filed by an investor named Robert Berg, but includes other unnamed investors in a class action status.

The suit contends the proxy statements Whole Foods filed on June 16 and 19 “omits material information” concerning the proposed Amazon deal, “which renders the Proxy Statement false and misleading,” the suit states.

Whole Foods, the lawsuit alleges, failed to include the company’s financial projections and the “financial analysis” put together by Whole Foods’ financial adviser, Evercore Group, LLC. The Proxy Statement omissions listed in the court filing include:

  • Earnings
  • Interest expense
  • Investment and other income
  • Income taxes
  • Depreciation and amortization
  • Net cash provided by operating activities
  • Capital expenditures
  • Changes in net working capital
  • Earnings per share
  • A reconciliation of all non-GAAP to GAAP metrics
  • Fiscal year 2022 EBITDA and unlevered free cash flow
  • Constituent line items used in calculating 2022 EBITDA and unlevered cash flow
  • The estimated range of terminal values of Whole Foods
  • Inputs and assumptions underlying the discount range of 7 to 9 percent

By not disclosing the information to the SEC, it prevents people who have invested money in Whole Foods from establishing a “basis to project the future financial performance of a company and allows stockholders to better understand the financial analyses performed by the company’s financial adviser,” the filing states.

“The omission of this material information renders the Proxy Statement false and misleading,” Berg and the others wrote in the federal filing. The omissions on the proxy statements would prevent stockholders from being able to make informed decisions concerning any vote to sell a company, the suit contends.

In count two, the plaintiffs claim Amazon “had the power to influence and control and did influence and control, directly or indirectly, the decision making” of Whole Foods. The suit alleges Amazon would have known about the “false statements” contained in the proxy statements turned in to the SEC in June.

All other offers refused

The deal between Amazon and Whole Foods will not allow any other company to enter a bid in the process, essentially guaranteeing Amazon the sole shot at purchasing Whole Foods. The lawsuit suggests the $13.7 billion sale amount is an “inadequate consideration” and “the intrinsic value of the company is materially in excess of the amount offered” with respect to the class action group’s perceived value of the company.

Under the purchase agreement, stockholders would also not be allowed to submit any other potential buyer proposals for purchase under the Amazon deal because of a “no solicitation” agreement between Whole Foods’ leadership and the Amazon purchasers, the suit states.

Whole Foods would also owe Amazon a “termination fee” of $400 million if any of Whole Foods shareholders were to cause the deal to fall through, according to the filing.

The suit wants the federal court to kill the deal if it’s finalized.

The plaintiffs are also asking for a proxy statement to be filed that “does not contain any untrue statements of material fact,” the filing states. The suing investors are also asking for attorney’s fees.

KXAN has asked Whole Foods and Amazon for a response to the lawsuit. As of this posting, we have not received those responses.

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