Whole Foods Reaps Wild Oats

Updated from 4:31 p.m. EST

Whole Foods (WFMI) jumped 5% late Wednesday after agreeing to buy smaller natural-foods grocery rival Wild Oats(OATS) for $565 million.

Whole Foods will pay $18.50 a share for Wild Oats, representing a 23% premium over the stock's one-month closing average and an 18% premium over its closing price of $15.72 Wednesday. Whole Foods also will assume about $106 million in debt.

The deal will be effected through a tender offer beginning Feb. 27.

Whole Foods, by far the market leader in the natural-foods sector, currently has 191 stores in the U.S., Canada and the U.K. Wild Oats operates 110 stores in the U.S. and Canada.

The purchase represents Whole Foods' largest-ever acquisition, and the Austin, Texas, company said it represents a "great geographical fit."

"All of our 11 operating regions will gain stores and three of our smallest regions -- our Pacific Northwest, Rocky Mountain and Florida regions -- will gain critical mass," said Whole Foods Chairman, CEO and co-founder John Mackey. "We will also gain immediate access into a significant number of new markets."

The news comes just three months after a soft 2007-2008 forecast walloped Whole Foods shares. At the time, the company said 2007 would be a "transition year" as it deals with slower growth.

Indeed, Whole Foods also posted a drop in first-quarter earnings Wednesday and missed analysts' targets. The company's profit for the period ended Jan. 14 fell to $53.8 million, or 38 cents a share, from $58.3 million, or 40 cents a share, a year earlier.