Whole Foods 2007 Annual Report Download - page 57

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(3) Business Combination
Effective August 28, 2007, the Company completed the acquisition of Wild Oats, a leading natural and organic foods retailer
in North America, in a cash tender offer of $18.50 per share, or approximately $565 million plus the assumption of
approximately $148 million in existing debt. At the date of acquisition, Wild Oats had 109 stores in 23 states and British
Columbia, Canada operating under four banners: Wild Oats (nationwide), Henry’s (in Southern California), Sun Harvest (in
Texas) and Capers (in British Columbia). To fund the transaction, we entered into a five-year $700 million senior term loan
agreement. We also signed a new five-year $250 million revolving credit agreement, which replaced our existing $200
million revolver. Wild Oats results of operations are included in our consolidated income statements for the period beginning
August 28, 2007 through September 30, 2007. In connection with the acquisition of Wild Oats, the Company separately
entered into an agreement to sell certain assets and liabilities, consisting primarily of fixed assets, inventories and operating
leases, related to all 35 Henry’s and Sun Harvest stores and a related distribution center in Riverside, CA to a wholly owned
subsidiary of Smart & Final, Inc., a Los Angeles-based food retailer for approximately $165 million. This sale was
completed effective September 30, 2007. Regarding the other 74 Wild Oats and Capers banner stores the Company acquired
in the Wild Oats Markets transaction, the Company has closed nine stores, including one that will re-open after an extended
renovation period, and relocated two stores to date, and currently intends to close an additional store, re-open the renovated
location, and relocate an additional seven stores to existing Whole Foods Market sites in development.
Whole Foods Market and Wild Oats have similar missions and core values, and the Company believes the synergies gained
from this business combination will create long term value for our customers, vendors and shareholders as well as exciting
opportunities for our new and existing team members by making us better positioned to compete in this rapidly changing
food retailing environment. All of our 11 operating regions gained stores in the acquisition, with three of our smallest
regions, the Florida, Rocky Mountain, and Pacific Northwest regions, gaining critical mass. The acquisition provided us with
immediate entry into five new states: Arkansas, Indiana, Oklahoma, Tennessee and Utah, and 15 new markets: Bend, OR;
Cincinnati, OH; Indianapolis, IN; Lexington, KY; Little Rock, AR; Melbourne, FL; Memphis, TN; Naples, FL; Nashville,
TN; Reno, NV; Salt Lake City, UT; Tampa, FL; Tucson, AZ; Tulsa, OK; and Westport, CT.
The purchase price of the acquired operations was comprised of (in thousands):
Cash payment to Wild Oats shareholders $ 564,726
Direct costs of the acquisition 34,211
Total purchase price $ 598,937
Direct Costs of the Acquisition
Direct costs of the acquisition include investment banking fees, legal and accounting fees and other external costs directly
related to the acquisition.
Preliminary Purchase Price Allocation
The acquisition was accounted for under the purchase method of accounting with Whole Foods Market treated as the
acquiring entity in accordance with SFAS No. 141, “Business Combinations.” Accordingly, the consideration paid by Whole
Foods Market to complete the acquisition has been allocated preliminarily to the assets and liabilities acquired based upon
their estimated fair values as of the date of the acquisition. The allocation of purchase price is based upon certain external
valuations and other analyses that have not been completed as of the date of this filing due to the timing of the closing of the
acquisition late in the Company’s fiscal year. Accordingly, the purchase price allocations are preliminary and are subject to
future adjustments during the allocation period as defined in SFAS No. 141. In connection with the acquisition, the Company
recognized liabilities totaling approximately $8.4 million for estimated costs associated with plans to involuntarily terminate
certain team members of Wild Oats and liabilities totaling approximately $100.7 million for estimated costs associated with
plans to exit certain activities of Wild Oats, including estimated costs of closure of business activities in certain locations,
that were included in the allocation of the acquisition cost. The excess of the purchase price over the estimated fair values of
assets acquired and liabilities assumed was recorded as goodwill. Goodwill is non-amortizing for financial statement
purposes and is not tax deductible.