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Whole Foods shares keep rising in bidding war speculation

Reuters 

By Sinead Carew and David Randall

- Market Inc added to their gains on Monday after Inc announced plans last week to buy the upscale grocer, with investors betting that rivals could step in to create bidding war.

also rose as Wall Street analysts lauded the proposed $42-per-share deal and bet that the company would prevail in any bidding battle.

rose 1.3 percent on Monday to close at $43.22 - adding to Friday's 29 percent rise and reflecting hopes the company might fetch higher price. ended up 0.8 percent at $995.17.

"We thought was thrifty in its offer," said Charles Kantor, managing director at Neuberger Berman Investment Advisers LLC, which owns around 2.7 percent of and had pressured the company to take steps to improve its stock price.

Kantor noted that Amazon's market cap gain roughly equaled the amount the company is paying for

"I think there's the argument that acquired for free," he said. "The reaction of shareholders suggests that has left themselves lots of room to pay more for this strategic asset."

Some investors suspected other companies were weighing rival bid.

"Every grocery store out there now is having conversation about how much they can afford to spend to keep out of the space," said Brian Culpepper, portfolio manager at James Advantage funds.

Culpepper, who owns Kroger Co shares, said Kroger is the company that would be most likely improve Foods' efficiency, but that it would have difficulty matching Amazon's cash offer.

Kroger climbed 1.6 percent to close at $22.64 on Monday.

"Kroger would have to pay in stock, and their stock has been hurting," giving them less leverage to get into protracted bidding war with Amazon, Culpepper said.

Barclays analyst Karen Short raised her price target to $48 from $38 and upgraded the stock to overweight from equal-weight, citing the possibility of counterbids.

"Many will do anything to either make this acquisition more costly for Amazon, or prevent the asset from landing in Amazon's lap," Short wrote in note to clients.

$48-a-share price tag would be more than reasonable for fellow retailer that could eliminate overhead at Foods, Short said, while adding that very few companies could outbid

Amazon's offer of $13.7 billion, representing multiple of 10 times earnings before interest, tax, depreciation and amortization, could possibly be raised to 11 or 12 times, according to Kevin Dreyer, co-chief investment officer at Gabelli Funds, which holds

"Fourteen billion is big number but it's not number where there's no other buyer," said Dreyer. "Others could certainly look at this and sharpen their pencils."

Wal-Mart Stores Inc could have sufficiently deep pockets to make counter bid and other grocery rivals such as Kroger or Albertsons Cos Inc would have the motivation, he said.

Any of the big grocery chains that bid on would likely win antitrust approval to buy the premium grocery chain, according to three antitrust experts.

Any buyer of would likely argue that it was not in the same market, said Alden Abbott, an antitrust expert with the Heritage Foundation.

"Even if they did compete ... you'd have to look at the presence of (other grocery chains)," said Abbott, who argued that many stores are in close proximity to other grocery stores, which means antitrust enforcers might be satisfied there was adequate competition.

(Additional reporting by Michael Flaherty and Lewis Krauskopf in New York and Diane Bartz in Washington; Editing by Lisa Von Ahn and Matthew Lewis)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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