Friday, February 23, 2007

Hit #147 (Wild Oats)

Finally! Wild Oats (OATS) is being acquired. I have been waiting for this for quite a while now, having started to buy the stock after a disastrous earnings disappointment more than a year ago.

Wild Oats is being bought by Whole Foods, which did come as a surprise to me. The purchase does make sense for Whole Foods to cement its stranglehold on the organic crowd. But given the Yucaipa/Ron Burkle/Democrat connection, I was expecting a Safeway/Wild Oats combine to be more natural. Even Kroger as a buyer made sense.

The buyout has got a great welcome. How many takeovers do you see where the buyer's stock goes up almost as much, in percentage terms, as the target, after the announcement! This, even after considering the fact that Whole Foods is the leader, and Wild Oats as a standalone entity didn't pose any threat.

While Wild Oats got a good price, they were in a position to get a better price with possible competing bidders in an auction.

The buyout is valued at $565 million. The cash offer, of $18.5, represents a gain of 138.4% over my average cost of $7.76. With some confidence I had built a somewhat larger position than usual here, even as the mainstream press was touting overvalued (at that point) Whole Foods stock, which pulled back later, disappointing, I am sure, quite a few readers. I had mentioned Wild Oats a couple of times in the past, here and here.

I would have been equally glad to receive Whole Foods stock which has been languishing after a long runup. While I am not a fan of the crowd that shops there (and the prices! - check out Undercover Economist for some explanation), I admire the honesty and integrity of its CEO. Check out his letter to his employees here. Sample this line -

I am now 53 years old and I have reached a place in my life where I no longer want to work for money, but simply for the joy of the work itself and to better answer the call to service that I feel so clearly in my own heart.

How many CEOs can say something like that ? Please read the letter in full - it is inspiring. Jack Welch will never be a role model for me. Whole Foods CEO ? Possibly.

Previous hit - Lesco (#146)


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