updated 6/5/2007 4:11:59 PM ET 2007-06-05T20:11:59

The Federal Trade Commission will file a lawsuit to try to prevent natural foods grocer Whole Foods Market Inc. from acquiring competing Wild Oats Markets Inc., the companies said Tuesday.

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The lawsuit, expected to be filed in federal court in the District of Columbia, will argue the marketplace is defined by natural and organic food stores and not the broader supermarket industry, said John Mackey, chairman and chief executive officer of Whole Foods.

FTC spokesman Mitch Katz would not confirm or deny the companies’ statements and declined to comment.

The planned purchase comes as the natural food retailers face increasing competition from traditional supermarkets and even big box retailers that are stepping up natural and organic food offerings.

The FTC, in previous reviews of industry acquisitions, has included organic and natural grocers in the supermarket marketplace, Mackey said. “We are very disappointed by this decision and we intend to vigorously challenge the FTC in court,” he said in a statement.

Austin, Texas-based Whole Foods offered in February to acquire Wild Oats for $18.50 a share in cash, or $565 million, and said it would assume about $106 million in debt as part of the deal.

It has extended the expiration date for its tender offer to June 20, the third such extension it has granted. Mackey said the company likely will extend the expiration date again if the federal lawsuit is filed.

The agreement also must be approved by shareholders of Wild Oats if Whole Foods acquires less than 90 percent of the Wild Oats’ outstanding stock in the tender offer.

Federal regulators have twice sought information from the two companies about the planned sale and indicated they may challenge it, Whole Foods has said.

Greg Mays, Wild Oats’ chairman and chief executive, said the companies believe the union of the two grocers will benefit the marketplace.

“While we disagree with the FTC’s position and believe it is without legal and factual merit, we are confident that, once presented with the facts, the court will agree that this merger is pro-competitive,” Mays said in a statement.

Shares of Wild Oats rose 6 cents to $16.97 a share while Whole Foods dropped $1.26 to $40.43 a share in afternoon trading.

Based in Boulder, Wild Oats offers natural and organic food markets in the United States and Canada. Whole Foods has stores in the United States, Canada and the United Kingdom.

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