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FTC loses bid to block Whole Foods acquisition

A federal appeals court on Thursday cleared the way for Whole Foods Market Inc. to buy rival organic grocer Wild Oats Markets Inc.
/ Source: The Associated Press

A federal appeals court on Thursday cleared the way for Whole Foods Market Inc. to buy rival organic grocer Wild Oats Markets Inc.

The three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit denied a request by the Federal Trade Commission to delay the $565 million sale pending the outcome of an appeal. Whole Foods lawyers argued that such a ruling would have killed the deal.

U.S. District Judge Paul L. Friedman refused to step in last week and block the transaction, a decision that federal regulators quickly appealed. They claimed that if the two companies combine, it would mean less competition and higher prices for premium and organic food.

The appeals court, in a brief ruling, agreed that the FTC “raised some questions” about the deal, but the judges said the agency had not proven that Friedman’s decision was flawed.

Representatives from the FTC did not immediately return calls seeking comment.

In his 93-page ruling, Friedman rejected the FTC’s argument that the two stores compete in a narrow market of “premium, natural and organic supermarkets.” He said supermarket chains such as Safeway Inc. and Kroger Co. are selling more fresh and organic produce and redesigning many of their stores to compete with Whole Foods.

About 60 percent of natural and organic food products sold come from conventional stores, he noted.

Whole Foods officials have said they would move at the first opportunity to close the deal. The company’s tender offer to purchase all outstanding shares of Wild Oats stock expires Monday.

“We are pleased to have cleared what we expect to be our last legal hurdle,” Whole Foods Chairman and CEO John Mackey said in a statement. “We look forward to closing this merger and believe the synergies gained from this combination will create long-term value for our customers, vendors and shareholders as well as exciting opportunities for our new and existing team members.”

Whole Foods agreed to purchase Wild Oats for $18.50 per share in February. The FTC sued to block the deal in June.

Friedman made no mention in his ruling of several notorious e-mails and other documents written by Whole Foods chief executive John Mackey that the FTC cited in its effort to block the deal.

For example, Mackey said in a February e-mail to a company board member that the acquisition would enable Whole Foods to “avoid nasty price wars” with Wild Oats in several cities.

The FTC requested a stay of Friedman’s ruling Aug. 17, charging in a court filing that he “utterly ignored the bulk of the commission’s case, including clear and authoritative statements by the principals that the rationale for the transaction is to eliminate competition.”

The appeals court agreed Monday to delay the transaction so that it could consider additional information. Its ruling Thursday came just hours after the FTC was expected to file its final brief in the case.

Keith Hylton, an antitrust law professor at Boston University, said in an e-mailed statement that courts in antitrust cases are putting more weight on “objective evidence ... and less on statements” by company executives.

“All firms want to take over their markets and eliminate their competitors,” he added. “Not many are successful. In the end, courts have to look at what the firm did — not what it said — and try to determine whether the firm’s actions really harmed competition.”

The deal adds to a string of 18 successful acquisitions in the past 27 years by Whole Foods. In a section of its Web site devoted to the transaction, the company said that approximately 25 percent of its current sales stem from stores it has acquired and 75 percent from those it has opened.

The ruling was released after markets closed Thursday. Whole Foods shares rose 62 cents to $43.96 in extended trading after closing down 19 cents at $43.34. Wild Oats shares jumped 42 cents, or 2.3 percent, to $18.49, after closing down 2 cents to $18.07.