Wild Oats Rises on Buyout Rumor
Shares of Wild Oats Markets Inc. rose nearly 3% on investor speculation of a takeover Friday, a day after the company said it could not reach an agreement to renew the contract of Chief Executive Perry Odak.
But analysts expressed doubt that the retailer of health and organic foods would be sold. They said the changes underway at the company reflected the increasing influence of Los Angeles grocery magnate Ron Burkle, whose Yucaipa Cos. owns 17% of the Boulder, Colo.-based chain.
“It’s pretty clear that Burkle is calling the shots there now,” said Andrew Wolf, an analyst at BB&T; Capital Markets in Richmond, Va. “Yucaipa is getting their people in place.”
Burkle built his fortune -- estimated at $2.3 billion by Forbes magazine -- buying and selling supermarket chains such as Ralphs, Alpha Beta, Fred Meyer Inc. and Food4Less. Besides Wild Oats, Burkle has interests in Supervalu Inc., the nation’s second-largest grocer, and Pathmark Stores Inc., a struggling grocery chain in the Northeast.
Earlier this month, Wild Oats named former Supervalu executive Roger Davidson as senior vice president of merchandising and marketing. In January, Wild Oats tapped ex-Fred Meyer executive Sam Martin as its senior vice president of operations. And now it looks like Odak also will be replaced “with external talent,” Goldman Sachs & Co. analyst John Heinbockel wrote in a report to investors.
“You don’t get rid of the senior executives if you are happy,” Wolf said.
Neither Yucaipa spokesman Frank Quintero nor Wild Oats executives returned calls Friday for comment.
During the first half of this year, Wild Oats swung to a profit of $7.8 million from a loss of $229,000 a year earlier, while revenue rose 6% to $595 million. In California, the company operates under both the Wild Oats Natural Marketplace and Henry’s Farmers Markets names. It has 113 stores in 24 states and British Columbia.
Heinbockel said he wasn’t surprised that Odak’s contract was not renewed, given that the chain has been unable “to narrow the gap” with Austin, Texas-based Whole Foods Market Inc., a more successful organic-style supermarket chain.
Both Heinbockel and Wolf discounted speculation that Wild Oats was a takeover target, especially by a traditional supermarket owner such as Kroger Co., which operates the Ralphs chain in Southern California.
Moreover, Yucaipa tends to buy on dips in a stock, and with Wild Oats’ shares rising, this didn’t look like an opportune time for Burkle’s company to take a deeper stake, Wolf said.
Shares of Wild Oats rose 48 cents Friday to $17.83. The stock has risen 48% in the last year. Still, the company’s investment performance has lagged far behind Whole Foods’.
Over the last five years, shares of Whole Foods have risen 278%. During that same period, Wild Oats gained 104%.
In August, Burkle disclosed plans to purchase as much as $680 million worth of Supervalu, or about 12%. The Eden Prairie, Minn., company owns Albertsons and Bristol Farms stores in Southern California. Last year, Yucaipa bought a 40% stake in Pathmark.
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