Whole Foods Shareholders Sue to Block Amazon Merger

FILE – This Feb. 7, 2007 file photo shows The Whole Foods Market in Portland, Maine. Online juggernaut Amazon announced Friday, June 16, 2017, that it is buying Whole Foods in a deal valued at about $13.7 billion, including debt. Amazon.com Inc. will pay $42 per share of Whole Foods Market Inc. (AP Photo/Pat Wellenbach)

AUSTIN, Texas (CN) — A pair of class-action lawsuits claim a financial statement issued by Whole Foods to its stockholders did not disclose potential conflicts of interest and other relevant information about its proposed merger with Amazon.

Robert Riegel and Robert Berg sued Whole Foods Market and its board of directors in Austin federal court for alleged securities violations in separate lawsuits filed Thursday and Friday, respectively.

Berg’s lawsuit also names Amazon.com and Walnut Merger Sub as defendants.

The Whole Foods directors named as defendants are: John Mackey, Walter Robb, Jonathan Seiffer, Gabrielle Sulzberger, Shahid Hassan, Stephanie Kugelman, Joe Mansueto, Mary Ellen Coe, Kenneth Hicks, Sharon McCollam, Ronald Shaich and Scott Powers.

Both Riegel and Berg are suing on behalf of a proposed class of public stockholders of Whole Foods Market over its proposed merger with Amazon. They say the class could include thousands of members given that, as of July 2, there were more than 335 million outstanding shares of common stock.

A joint press release issued June 16 announced that Amazon was acquiring Whole Foods for $42 per share in a transaction valued at about $13.7 billion.

“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” Whole Foods co-founder and CEO John Mackey said at the time.

But Whole Foods’ July 7 proxy statement that was filed with the Securities and Exchange Commission for the proposed deal omitted material information about the merger transaction, according to Riegel and Berg’s lawsuits.

Berg claims the missing information includes financial projections and analyses performed by Whole Foods’ financial advisor, Evercore Group.

He alleges the proxy statement fails to disclose projections about 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; and earnings per share.

“The disclosure of projected financial information is material because it provides stockholders with 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 advisor in support of its fairness opinion,” his lawsuit states.

Riegel similarly notes the alleged omissions about Evercore’s financial analyses and fairness opinion.

Without that information, he says, “Whole Foods public stockholders are unable to fully understand these analyses and, thus, are unable to determine what weight, if any, to place on Evercore’s fairness opinion in determining whether to vote in favor of the proposed transaction.”
Riegel and Berg also allege that the proxy statement does not disclose possible conflicts of interest of Whole Foods’ officers and directors with respect to the merger with Amazon.

“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,” Riegel’s complaint states. “However, the proxy statement fails to disclose the timing and nature of all communications regarding future employment and/or benefits relating to Whole Foods management, including who participated in such communications and when Amazon first expressed its interest in retaining members of Whole Foods management following the merger.”

Riegel claims the omission is “particularly troubling” given that the June 16 press release indicates that Mackey will stay on as CEO of Whole Foods after the merger.
He says information about those communications is needed because it “provides illumination concerning motivations that would prevent fiduciaries from acting solely in the best interests of the company’s stockholders.”

Berg further claims that information about Evercore’s potential conflicts of interest was also not fully disclosed.

“The proxy statement fails to disclose the amount of the retainer fees and the ‘certain fees in connection with potential acquisition proposals [Evercore] may receive and other strategic shareholder advisory matters’ to be paid to Evercore by the company,” his complaint states.

Berg asserts that full disclosure of “investment banker compensation and all potential conflicts is required due to the central role played by investment banks in the evaluation, exploration, selection, and implementation of strategic alternatives.”

Both lawsuits claim the Whole Foods proxy statement’s alleged omissions render it false and misleading in violation of the Securities and Exchange Act, depriving shareholders of their right to cast a properly informed vote on the merger.

Neither Whole Foods nor Amazon responded Monday to email requests for comment.

Riegel and Berg seek injunctive relief preventing the closing of the proposed merger, or rescission in the event that it is completed.

Joe Kendall of Dallas is lead attorney in both lawsuits.

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