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Whole Foods Takes on Equity Investor

An affiliate of Leonard Green & Partners acquires 17 percent of the organic and natural food retailer

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Green Equity Investors V LP (Los Angeles) has announced it is buying a 17 percent stake in Whole Foods Market Inc. (Austin, Texas).

The news came as Whole Foods announced a same-store sales drop of 0.4 percent in its fourth quarter ended Sept. 28, 2008, and a 2.1 percent same-store sales drop for the ensuing five weeks of October. Profits plunged nearly 100 percent in the quarter. (The drop was partly related to costs associated with its merger with Wild Oats Markets, lease terminations and other charges.)

Under the terms of the agreement, Green Equity Investors, an affiliate of Los Angeles-based Leonard Green & Partners, will invest $425 million in the company. Jonathan Sokoloff, a managing partner of the private equity firm, and a colleague, Jonathan Seiffer, intend to join Whole Foods’ board.

“We view it as a strong vote of confidence in our business model and our long-term growth prospects despite the tough current economic environment,” said Whole Foods co-founder and ceo John Mackey. “This equity infusion, combined with our strong cash flow from operations, gives us the financial flexibility to manage through these difficult economic times.”

The retailer, once the darling of both investors and foodies, has been battered by competition from traditional grocery stores that have expanded their offerings of organic and natural foods. Furthermore, in the current economy, consumers are trading down to cheaper products and discount stores.

“We believe our core customers remain committed to Whole Foods,” said Mackey. “However, the unrelenting negative economic news appears to be shifting buying behavior to making fewer trips and to making more value-conscious decisions.”

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“Whole Foods Market is an exceptional company that has revolutionized how consumers shop for natural and organic products,” said Sokoloff. “We are pleased to make this investment and look forward to a partnership with the board and management team to drive long-term growth, profitability and value for all shareholders.”

Leonard Green & Partners has significant investments in other retail companies, including The Neiman Marcus Group, The Container Store, David's Bridal, Petco Animal Supplies and The Sports Authority, among others.

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