Leonard Green Buys Into Whole Foods

LOS ANGELES (Reuters) – Private equity firm Green Equity Investors V LP has bought preferred shares in Whole Foods Market Inc (WFMI.O: Quote, Profile, Research, Stock Buzz) for $425 million, which can give them a stake in the company of about 17 percent, if converted into common.

The high-end grocery chain’s shares rose nearly 22 percent in after hours trading.

“This investment, combined with our strong cash flow from operations, gives us the financial flexibility to manage through these difficult economic times while continuing to prudently invest in our long-term growth,” John Mackey, Whole Food’s chief executive officer said in a statement.

Whole Foods, which thrived prior to the economic crisis by selling organic, natural and gourmet food at premium prices — has been hit as cost-conscious consumers trade down to lower-priced stores.

Executives said the grocer would use a portion of the proceeds from selling the series A preferred stock to pay down debt and keep the remainder on its balance sheet so that it has adequate long-term liquidity. Earlier this year Whole Foods cut expansion plans and halted its dividend.

The Austin, Texas-based company also said fiscal fourth quarter net income fell to $1.5 million, or 1 cent per diluted share, from $33.9 million, or 24 cents per share.

The most recent quarter results included 12 cents in total charges related to idle Wild Oats properties; a tax charge; asset impairments and 13 lease terminations of Whole Foods stores in development.

Whole Foods bought Wild Oats Markets last year for $565 million.

Sales, including those from divested stores, rose to $1.79 billion from $1.74 billion, but gross profit declined.

Comparable store sales rose 0.4 percent percent and identical store sales, excluding results from eight relocated stores and two major expansions, fell 0.5 percent. Those figures are used to gauge health at grocery stores.

The chain bought Wild Oats to strengthen its position against mainstream grocers that are carrying more organic, natural and prepared foods. A U.S. appeals court ruling in late July overturned a lower court decision allowing the Wild Oats buyout to proceed and the company is entangled in a legal battle over that decision.

Whole Foods in August cut its fiscal 2009 target for new store openings to about 15 from 25 to 30 previously.

On Wednesday, executives declined to give a 2009 forecast for comparable store sales due to the uncertain and rapidly changing economy.

In August, Whole Foods forecast 2009 profit of $1.08 to $1.14 a share on sales growth of 6 percent to 10 percent.

The company’s shares rose to $12.54 in extended trading from their $10.31 close on Nasdaq. One year ago, the shares were trading at $51.06.

Whole Foods has more than 270 stores in the United States, Canada, and the United Kingdom. Green Equity Investors V LP is an affiliate of Los Angeles-based Leonard Green Partners LP.

Whole Foods said the preferred stock has an 8 percent dividend, and will be convertible, under certain circumstances, to common at an initial conversion price of $14.50 per share.

This is a premium of about 32 percent to Whole Foods’ closing common stock price of $10.99 on Tuesday.

The company said the dividend can be reduced over time if its stock rises above certain levels and the preferred can be redeemed early or converted into subordinated convertible notes under certain circumstances. (Reporting by Lisa Baertlein; Editing by Andre Grenon and Carol Bishopric)