Whole Foods Market CEO Not Too Keen On Jana Partners Approach

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The results of our Tuesday poll are out

On Tuesday, we asked: After the resignation of General Electric’s Jeff Immelt this week, and the approval of Hunter Harrison’s pay package at CSX last week, do you expect the number of activists’ demands to replace CEOs to increase?

You said:

Yes – 74%

No, they will remain stable – 13%

No, they will decrease – 7%

Don’t know – 6%

Here’s a thing. About a month after offering activist hedge fund Jana Partners two seats on the board of Whole Foods Market, CEO John Mackey wants the world to know he’s not too keen on their approach. While most of the financial world is focused on his calling Barry Rosenstein and co a bunch of “greedy bastards” in this incredible profile, the real quinoa is here:

“These people, they just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist that… That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if they want to take it over.”

Mackey doesn’t want to engage Goldman Sachs, according to the article, because he doesn’t want to be bounced into a sale of the company or pay $100 million in fees. Presumably he won’t be hiring McKinsey either, which published an article this week on “The benefits of thinking like an activist investor.” Among the recommendations: “By incorporating value-creating ideas into its plans and effectively communicating them to long-term shareholders, companies may find that even the most astute activists will be hard pressed to dazzle other shareholders with a better proposal.”

At this rate, it doesn’t sound like Whole Foods will be offering shareholders very much at all. The background of the chief financial officer it appointed in response to concerns expressed by Neuberger Berman has already disappointed that investor, according to a recent Wall Street Journal interview. Shareholder-friendly measures announced by Whole Foods in May, including a dividend increase, cost-reductions and a loyalty scheme roll-out, suddenly do not seem to be very high on the priority list.

Nonetheless, the prospect of Mackey winning his bout with Jana should be entertained. The most likely buyer for Whole Foods, Kroger, was badly hit yesterday by falling margins and rising debt that may impact its willingness to spend big on acquisitions. Shares in Whole Foods fell on the news. Other potential bidders seem to have already passed and the share price is now inflated by expectations of a sale. Meanwhile, Jana has only ever fought one proxy fight to the death, unsuccessfully as it happens.

One thing to watch at Whole Foods is that directors of the Texas-incorporated company owe a fiduciary duty to the corporation, not shareholders. Another is that a watered-down version of a bill aimed at activist investors is still sitting in a legislative committee and could come back into play. When it comes to keeping Austin weird, Mackey has Texas on his side.

What it sounds like Mackey wants to do is a management buy-out. Who knows whether he is actively exploring the possibility, in between his many other commitments. The board and C-Suite own just 1.3% of shares, and Mackey’s net worth is just $100 million, according to Texas Monthly’s profile, so there is a lot of ground to make up. Plus, if he thinks private equity will be easier to deal with than public markets, he may end up taking a bigger hike in the long run.

Article by Activist Insight

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