Leonard Green makes $425m PIPE in Whole Foods

Private equity firm Leonard Green & Partners has agreed to purchase a $425 million stake in publicly listed organic foods grocer Whole Foods Market. 

The investment was made out of its fifth fund, Green Equity Investors V, which closed on $5.3 billion last year.

Following the agreement, the Los Angeles-based firm will take a 17 percent ownership interest in the international supermarket chain in the form of series A preferred stock convertible to common stock at a strike price of $14.50 per share. That price represents a 32 percent premium to the company’s closing sale price yesterday of $10.99 on the Nasdaq stock exchange. 

The deal was announced shortly after the close of trading yesterday. At press time today, Whole Foods was

Whole Foods: shares jump on deal news

trading at $11.68 per share, buoyed 13.4 percent on news of the investment.

Leonard Green will receive an 8 percent dividend from the preferred stock, with reductions in dividend payments scheduled in three years if Whole Foods’ trading price improves to $17.75 per share or more. Whole Foods may also redeem the preferred stock at any point if its common stock closes at or above $28.50 per share for 20 consecutive trading days, according to a company statement.

The transaction is expected to close within thirty days, subject to customary regulatory approvals.

Austin, Texas-based Whole Foods, which maintains 278 stores in the US, UK, and Canada, has watched its earnings and stock price decline in recent months amid both real and anticipated cutbacks in consumer spending.

The supermarket chain reported a net income, or profit attributable to shareholders, of $1.5 million for the fourth quarter of 2008, down from $33.9 million over the same period last year.
 
Leonard Green, whose past investments have included Petco Animal Supplies and the Neiman Marcus Group, has historically been highly active in the consumer and retail space.

In August, the firm sold floral delivery service company FTD Group for $754 million to internet retailer United Online.

Led by managing partners Jon Danhaklh, Peter Nolan and Jonathan Sokoloff, Leonard Green manages roughly $9 billion in equity capital.