1. Because if you are acquiring a company then most of the time it is implied that you are taking
everything (Assets + liabilities). In order to take assets and they should pay their liabilities
(outstanding debt) too. So, I could say that amazon took it as a responsibility. Fundamentally,
it is the present value of all the outstanding debt that would be considered while calculating
the purchasing price of the company. Amazon can use those liabilities for taking tax benefits.
2. Synergy basically leads to generate incremental cash flows for the target & acquirer company.
When we combine the market value of both companies that exceed the market value of a
single company. With the help of acquisition, both companies can save their cost significantly.
For example, they can use their supply chain technology in order to reduce some labor costs.
Also, both the firms can expand customer reach for example amazon is giving extra 10%
discounts to prime members who will order groceries (excluding alcohol) from their platform.
It means they can incentivize their loyal customer base. On top of that, it also gives amazon
460 refrigerated distribution outlets in USA where they can store their packages & use those
outlets to receive return orders.
3. There are several hurdles that amazon has to overcome for example amazon is low-price
provider while wholefoods is charging a premium for their premium products. Amazon’s main
focus is on cost-cutting & providing efficiency, on the flip side wholefoods focusing on charging
higher prices from a customer by providing them premium customer service. Also, culture
difference plays a crucial role in this deal for example amazon has quite a good employee
retention ratio however wholefoods has the reputation of taking good care of their employees
and retaining them for a longer period. As amazon is believing in cost-cutting, they might cut
the salaries of their employees which could not be acceptable by wholefoods’ employees.
4. The main purpose of amazon behind the acquisition is to enter into brick-and-mortar stores
which is quite different from their business model. Also, amazon will get around 500
refrigerator storage spaces which they can utilise in their delivery.
For wholefoods, there could be various purposes which are as follow 1. They can increase
their customer reach with the help of amazon’s loyal customers. 2. Also with the help of this
acquisition their market value will increase which had been falling. 3. They will get easy entry
into the online grocery market with the help of amazon fresh 4. They can utilize amazon’s
strong logistic support to provide delivery to their elite customers.