Ronald Burkle buys 7% of Whole Foods Markets shares

It looks like Los Angeles billionaire Ronald Burkle is on a shopping spree.

On Thursday the supermarket mogul disclosed in a regulatory filing that he had purchased a 7% stake in Whole Foods Market Inc.

Last week Burkle revealed in another filing that he had acquired an 8.3% stake in the Barnes & Noble Inc. book chain.

In both cases, Burkle said he believed the shares of the companies were undervalued. But he has yet to spell out his broader strategy for investing in companies hard hit by the recession.


Burkle built his fortune, which was estimated to be about $3 billion before the recent financial market meltdown, buying and selling supermarket chains such as Ralphs, Alpha Beta, Fred Meyer Inc. and Food4Less.

Whole Foods jumped $2.26, or almost 23%, to $12.27 on news of the investment by Burkle and various entities controlled by his Yucaipa Cos. investment arm. The supermarket chain’s stock had plunged 77% in 2008.

In the Securities and Exchange Commission filing, Burkle said he believed that shares of the natural and organic foods grocery chain were undervalued and “that there are substantial opportunities for the company to improve operations and its pricing image while maintaining its high-quality product offering.”

Whole Foods is sometimes nicknamed “Whole Paycheck” because of the perception by some consumers that the chain’s organic products and wide selection of prepared foods and wines make it an expensive place to shop.


Both Whole Foods and Barnes & Noble have been hurt by shoppers’ reducing spending as the recession has deepened. Barnes & Noble said Thursday that its holiday-season same-store sales fell 7.7% and its total sales -- which include revenue from new stores -- fell 5.2% during the period.

Whole Foods said recently that during its fourth quarter, which ended Sept. 28, identical-store sales, excluding eight relocated stores and two major expansions, decreased 0.5% compared with a 6% increase in the same period a year earlier.

Net income plunged to $1.5 million from $34 million in the same period a year earlier. Part of the decrease resulted from expenses related to its 2007 acquisition of the Wild Oats Markets Inc. chain. Burkle also was a major Wild Oats shareholder.

In November, Whole Foods sold $425 million worth of preferred stock -- convertible into a 17% stake -- to an affiliate of retail investment firm Leonard Green & Partners to shore up its cash position as the economy worsened.

Burkle said in the filing that for now, he will keep the Whole Foods shares as an investment.

However, he said he would “closely monitor the company’s performance” and could modify his plans depending on his investment company’s evaluation of the grocer’s “business prospects and financial position, other developments” and “opportunities.”

Whole Foods executives declined to talk about the Burkle investment.

“We have received the filing and are aware of Yucaipa’s purchase. We are focused on running our business as usual and creating value for all our stakeholders,” the company said in a statement.


Said Andrew Wolf, an analyst at BB&T; Capital Markets in Richmond, Va., “Ultimately, what Yucaipa has done with other companies is acquire, merge and then sell. Look at Wild Oats, where they acquired stock, put in management and sold the company.”

Burkle founded Yucaipa in 1986 and has since completed mergers and acquisitions valued at more than $30 billion.

He purchased the Whole Foods shares at prices ranging from $8.94 to $10.55 from Nov. 24 to Jan. 7, well below Thursday’s closing price.