Will Publix buy its crunchy, more pricey competitor, Whole Foods Market?
That was the rumor swirling on Wall Street late this week when Whole Foods' stock rose and options activity surged.
Most likely, it will end there, the buzz more indicative of the strength of both grocers rather than any pending deal.
"We see rumors like these 20 to 30 times a day, and very few of them end up coming to fruition," said Gavin Maguire, a senior analyst at Briefing.com, which provides financial commentary and analysis.
Briefing.com reported Thursday, "Hearing chatter that privately held Publix is interested in WFM." By day's end, Whole Foods' stock was up 4.7 percent in heavy trading and option activity was high. On Friday afternoon, the stock (WFM) was up about 2.2 percent.
Maguire suspects the speculation is rooted in Whole Foods' recent performance. Whole Foods, while a market leader in a growing segment, got clobbered on a poor earnings report in May, sending its stock price down 20 percent and forcing the company to ratchet down its 2014 forecast.
"For a long time, Whole Foods had the field to ourselves," Co-CEO John Mackey said during a conference call with investors and analysts. "That was nice, but we don't anymore."
Traders still bullish on Whole Foods started buying stock and options at the low price, drawing analysts' attention. To explain the furor, talk surfaced about a potential buyout. And who was in a good position to buy Whole Foods' 383 stores?
None other than Publix, a privately held chain that did $7.8 billion in sales during the first quarter of the year, up 4 percent over last year.
"All the clues are there that this would kind of make sense," Maguire said. "But you see this kind of activity all over the market, especially in a stock that got crushed."
Both Publix and Whole Foods had no comment about the rumor. Jeremy Jones, Florida spokesman for Whole Foods, based in Austin, Texas, said it had "no merit."
Publix's purchase of Whole Foods would be a leap for the Lakeland-based chain. The chain has 1,077 stores, all clustered in the Southeast and the majority (753) in Florida. Whole Foods has 383 stores nationwide, in Canada and the United Kingdom.
That's not to say Publix wouldn't want to eliminate Whole Foods as a competitor. Whole Foods — along with Fresh Market, Trader Joe's and other specialty grocers — is aggressively trying to enlarge its market share through price cuts and more affordable items. Having one fewer competitor would give Publix that much more energy for dealing with its main adversary, Walmart.
Susan Thurston can be reached at email@example.com or (813) 225-3110.