Private-equity firm Leonard Green & Partners may have pulled off the impossible, checking out of Whole Foods with more dough than when it came in.
The firm, whose three managing partners all cut their teeth at Drexel Burnham Lambert, caught the bottom last November when it invested $425 million in the organic grocer for convertible shares that paid it a guaranteed 8 percent interest, and could be converted into common stock at $14.50 per share.
At the time, Whole Foods was trading at between $10 and $11 a share.
It had just reported a puny $1.5 million in quarterly net income, compared to $34 million a year earlier, and said it needed the money from the equity sale to weather the economic slowdown.
The PE firm believed the move towards healthy eating was more than a trend, and Whole Foods would withstand the recession, a source said.
Whole Foods is now back to healthy organic growth in earnings. The company last week reported $36 million in quarterly net income, similar to 2007 levels, and its stock is $32 a share.
Whole Foods is exercising its rights, which it can do once the shares hit their current level, and are converting Leonard Green’s shares into common stock. That way Whole Foods can stop paying the eight percent interest.
Now, Leonard Green will own 17 percent of common stock and shares worth nearly $1 billion, more than doubling its money in less than one year.
LeonardGreen has not always been right, though, when calling the bottom.
The firm bought debt roughly one year ago in Clear Channel, the radio giant, with $1 billion in face value. Since, Clear Channel’s debt has fallen in value and it is expected to default on its loans in the first half of next year.
Leonard Green and Whole Foods declined comment.