Amazon turns to debt markets to back grocery conquest plans

A customer enters the Whole Foods Market in Superior, Colorado, United States.
A customer enters the Whole Foods Market in Superior, Colorado, United States.PHOTO: REUTERS

NEW YORK (Bloomberg) - is turning to the debt markets to fund the acquisition of Whole Foods Market and power Jeff Bezos's planned conquest of the supermarket business.

The world's largest online retailer is selling unsecured bonds in as many as seven parts, according to a person with knowledge of the matter.

The longest portion of the offering, a 40-year security, may yield 1.6 percentage points to 1.65 percentage points above US Treasuries, said the person, who asked not to be identified as the deal is private.

Amazon is selling bonds for the first time since 2014 to support the US$13.7 billion purchase of the organic-food chain, according to a company statement, a deal that rattled the grocery world in June.

The partnership is expected to reduce prices at Whole Foods, an iconic yet struggling high-end grocery trying to lure more low- and middle-income shoppers.

The deal could intensify a price war in an industry beset by razor-thin margins and persistent deflation.

The move comes at a time when tech companies have been active debt issuers, including a debut offering from Tesla on Aug 11, and Apple announced Tuesday its first Canadian-dollar debt sale.

An onslaught of supply as well as rising geopolitical tensions in the Korean Peninsula has added to the extra yield that investors demand over Treasury bonds.

"Despite recent market volatility and indigestion, we would expect this deal to be very well-received," said Mr Matt Brill, a money manager at Invesco.

Mr Bezos, briefly the richest person in the world last month, has built Seattle-based Amazon into a retail giant since its 1994 founding.

Amazon has been an infrequent issuer in the investment-grade bond market, with only US$7.8 billion of debt outstanding as of June 30.

Seattle-based Amazon said in June that it expects to finance the takeover with debt and cash.

"Despite the increase in debt, the Whole Foods acquisition is an immediate credit positive for the company on a variety of fronts," Moody's analyst Charlie O'Shea said in a report, revising Amazon's outlook to positive from stable.

"Whole Foods provides Amazon with greater scale and a crucial brick-and-mortar presence in a segment where it has been trying to grow."