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Whole Foods Reaps Wild Oats

The grocer will buy its smaller natural-foods rival for $565 million.

Updated from 4:31 p.m. EST

Whole Foods


jumped 5% late Wednesday after agreeing to buy smaller natural-foods grocery rival

Wild 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.

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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.

Sales rose to $1.87 billion from $1.66 billion, while same-store sales increased 7%.

Analysts polled by Thomson Financial expected earnings of 41 cents a share and sales of $1.89 billion.

"Given our record store development pipeline, continued anticipated acceleration in store openings, and now the announcement of our pending merger with Wild Oats Markets, we believe we are even better positioned to achieve our goal of $12 billion in sales in fiscal year 2010," Mackey said. "Over the longer term, however, we believe our sales potential is much greater as the market continues to grow and as our company continues to improve."

Wild Oats' largest shareholder, Ron Burkle's Yucaipa Cos., has agreed to tender its 18% stake in the deal. Whole Foods expects the purchase to close in April.

After the deal closes, Whole Foods plans to evaluate each banner as well as each store to see how it fits into its overall brand and real estate strategy. The company expects to make significant investments in remodeling stores before eventually re-branding them as Whole Foods Market stores.

Shares of Whole Foods recently were up $2.40 to $48.10 in after-hours trading. Wild Oats shares were surging $2.71, or 17%, to $18.43.