Whole Foods CEO ‘bluntly’ outlines merger bid

/ Source: The Associated Press

The chief executive of Whole Foods Market Inc. told his board that if it bought its leading rival, the company would “eliminate forever” the possibility that anyone else could create a nationwide competitor in the natural and organic grocery business, government lawyers say.

Chairman and CEO John Mackey also said that buying Wild Oats Markets Inc. would let Whole Foods “avoid nasty price wars” in several cities where the two compete, the lawyers wrote in a court document unsealed on Tuesday.

Federal Trade Commission lawyers reported the comments in a request this month for a temporary injunction to block Whole Foods from buying Wild Oats. A federal judge approved the request.

Mackey made an unusually public counterattack on the FTC. In a 14,000-word blog posting on the company’s Web site, he accused regulators of bullying, arrogance, and deciding to oppose the deal before starting the investigation.

Many of the comments that the FTC highlighted in its complaint came from an e-mail that Mackey sent to board members early in the process of buying Wild Oats. Mackey complained that the remarks were taken out of context — that some were mere brainstorming or “macho posturing.”

Mackey also criticized the reasoning behind the FTC’s judgment that Whole Foods had violated antitrust laws by trying to eliminate a competitor.

“If eliminating a competitor is inherently ’bad’ or ’wrong’ then the FTC should probably never allow any mergers to ever occur, because most mergers necessarily mean the elimination of a competitor from the marketplace,” Mackey wrote in his blog.

Whole Foods announced in February it agreed to buy smaller rival Wild Oats for $18.50 per share, or about $565 million. But this month, the FTC filed a lawsuit in federal district court in Washington and won a temporary restraining order to block the deal.

Whole Foods was forced Monday to extend its tender offer for Wild Oats through July 20, and another delay could be coming because a hearing in the lawsuit has been scheduled for July 31.

The dispute centers on defining Whole Foods’ competition. Regulators say Whole Foods and Wild Oats are leading players in natural and organic food, but Whole Foods argues that the companies are a small part of a much larger industry because big grocery chains also sell organic food.

Government officials had publicly charged that combining the two natural-food chains could lead to higher prices, but the unsealed filing by the FTC added new details.

The FTC lawyers said Whole Foods Chairman and CEO Mackey “bluntly” told his company directors why he wanted to acquire Wild Oats.

Mackey said buying Wild Oats would avoid profit-draining price wars in Portland, Ore.; Boulder, Colo.; Nashville, Tenn. and other cities, according to the FTC. It would also block a challenge from bigger chains such as Kroger Co. or Safeway Inc., he reportedly told the board.

Mackey told his board that Wild Oats “may not be able to defeat us, but they can still hurt us.” He said the smaller chain “is the only existing company that has the brand and number of stores to be a meaningful springboard for another player to get into this space. Eliminating them means eliminating this threat forever, or almost forever.”

In his blog, Mackey said Whole Foods has bought 18 other companies in 27 years to eliminate competitors and faces more competition than ever because supermarkets now sell organic and natural food.

Mackey also said that the FTC can’t prove that prices would increase if the deal goes through.

Because of the difficulty with the FTC, Mackey said Whole Foods was unlikely to ever attempt another acquisition.

Jim Sud, an executive vice president, said Whole Foods decided to go public with its view of the dispute when it learned that previously sealed documents were going to be released and contained “sensational lines” that the company considered to be taken out of context.

Whole Foods shares fell 56 cents to $38.95 on Tuesday, while shares of Wild Oats lost 17 cents to close at $17.03.