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Judge won't block Whole Foods merger

posted on August 17, 2007

WASHINGTON (AP) A federal judge Thursday gave the go-ahead for grocer Whole Foods Market Inc. to buy rival Wild Oats Markets Inc., rejecting government arguments the deal would stifle competition and lead to higher prices. The judge denied the Federal Trade Commission's request to temporarily block the $565 million deal. U.S. District Judge Paul L. Friedman's reasoning was detailed in a 93-page court document that was sealed because it contains corporate secrets. The FTC could appeal the ruling and could ask the court to delay the closing of the transaction, pending the appeal. Jeffrey Schmidt, the FTC's director of competition, said agency officials are "reviewing our options." He declined to commit to a specific action. Whole Foods operates 177 stores in the United States, while Colorado-based Wild Oats has about 110. Both are relatively small players in the grocery business, but FTC lawyers argued the combined company would essentially corner the market on premium and organic food. Texas-based Whole Foods countered that plenty of other supermarkets, including larger grocery chains, sell natural and organic food. However, government lawyers said only Wild Oats provides the kind of competition needed to keep prices in check. "It appears that the court likely placed value on the evidence submitted by Whole Foods showing that the company faces meaningful competition from conventional supermarkets," such as Safeway Inc. and Kroger Co., said Mike Cowie, an antitrust attorney and former FTC official. Whole Foods' documents outlining plans for the transaction, dubbed "Operation Goldmine," call for about 30 Wild Oats stores to be closed, according to a government court filing. The company expects revenue at nearby Whole Foods stores to nearly double, government attorneys said. Whole Foods also plans to sell 35 Wild Oats stores in California and Texas that operate under the Henry's and Sun Harvest names. Gregory Mays, chief executive of Wild Oats, said the combination of the two companies "will mean significant career opportunities for our store associates, capital investment in our stores to enhance the shopping experience for our customers and value-creation for our shareholders." Shares of Whole Foods surged $3.28, or 8 percent, to $44.45 in after-hours trading after ending the regular trading session down 33 cents to $41.17. Shares of Wild Oats jumped $2.89, or 19 percent, to $18.10 in after-hours trading after ending the regular session up 21 cents to $15.21. Whole Foods offered $18.50 per share for Wild Oats in February. The FTC filed suit to block the transaction on antitrust grounds in June. The proposed merger and the FTC's lawsuit has generated tremendous attention from analysts and industry insiders, requiring an overflow room in court for those eager to absorb emerging details about the companies. It also made headlines for other unusual reasons: Federal regulators are probing the actions of Whole Foods CEO John Mackey, who was revealed to have talked down Wild Oats shares on Internet message boards under a pseudonym, and the FTC on Tuesday inadvertently revealed numerous company secrets by briefly releasing electronic documents that hadn't been correctly redacted. The documents were quickly pulled back and redacted versions were released later. Whole Foods said it agreed with the FTC's request not to close the transaction before Aug. 20. The companies may complete the acquisition after that date if no stay has been granted, Whole Foods said. On July 31, Mackey said Whole Foods would move quickly to close the deal at the first opportunity. "If we're allowed to go through and close this transaction, we're going to do so," he said then. "We'll start closing stores and integrating the companies ... Once the eggs get scrambled, they're kind of hard to unscramble." The judge's decision is the latest in a series of losses for the federal government on antitrust cases. The Justice Department failed in its effort to block Oracle Corp.'s acquisition of PeopleSoft in 2004 and the FTC was thwarted in its bid to block Western Refining Inc.'s purchase of fellow gas refiner Giant Industries Inc. this year. The FTC last won an antitrust case in court in 2002, when it succeeded in blocking Libbey Inc. from buying restaurant glassware maker Anchor Hocking Corp. from Newell Rubbermaid Inc.

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