Activist hedge fund Jana Partners has amassed an 8% stake in Whole Foods Market (WFM) and is urging them to work harder harnessing strategies to maximize operational efficiencies and also test the waters in terms of possible takeover interest. I have been a fan of the company for a long time, and of the stock ever since it cratered into the 30’s several years back. The original investment thesis hinged on long-term square footage growth (8-10% annually) but the company has now decided to slow new location development. As a result, we are now left with more of a cash cow business with minimal growth (same store sales have been falling 2-3% for over a year).

The stock recently traded in the high 20’s (too low for even a slower growth outlook) and Jana seems to have timed their purchases very well during February, March, and April at prices of between $28 and $32 each. Even without a buyout I believe WFM stock would be fairly valued in the low 40’s (far lower than I would have said when they had a stated objective of reaching 1,200 stores (versus less than 500 today). Wall Street does not agree, as even with the Jana-related bump the stock fetches $34 per share.

The easiest way for WFM to realize a more fair price would be to find a buyer, but the company would be a big target ($11 billion market value at current prices). As a shareholder, I would not be thrilled with anything less than a $13.5 billion acquisition price. But who would acquire WFM?

The press reports that Amazon contemplated an offer last year seems odd. They simply prefer to build businesses internally. With no track record of large M&A deals, the odds that Jeff Bezos would all of the sudden offer eleven figures for WFM seems remote.

The second possibility would be a strategic buyer, as in one of WFM’s grocery store competitors such as Kroger or Albertson’s. One could make the argument either way on this line of thinking. The traditional stores have been successful recently copying the WFM product offering, which has resulted in negative comps for the organic pioneer, so they really don’t need to buy WFM. On the other hand, one less competitor means less pricing pressure industry-wide, which could be attractive in such a cut throat market like grocery retailing. I could understand both sides of the coin very easily.