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Court stays Whole Foods takeover of Wild Oats

A federal appeals court said Monday it needs more time to consider whether to block Whole Foods Market Inc.’s takeover of rival Wild Oats Markets Inc.
/ Source: The Associated Press

A federal appeals court said Monday it needs more time to consider whether to block Whole Foods Market Inc.’s takeover of rival Wild Oats Markets Inc.

The U.S. Court of Appeals for the District of Columbia Circuit temporarily put the $565 million deal on hold until it can hear more arguments. The three-judge panel said, however, the decision “should not be construed in any way as a ruling on the merits” of the case.

The Federal Trade Commission Friday asked the court to stay a decision by U.S. District Judge Paul L. Friedman that allowed the transaction to proceed. The agency has also appealed Friedman’s Thursday decision and wants to block the deal on antitrust grounds.

Whole Foods is blocked “from taking any further steps to acquire the stocks, assets or any other interest” in Wild Oats until the appeals court issue a further ruling, the panel said Monday.

Whole Foods has until Wednesday afternoon to respond to the FTC’s request for a stay, the court said. The agency has until Thursday to counter Whole Foods’ response. The accelerated schedule suggests the court plans to move quickly.

The companies agreed last week not to begin closing the transaction until noon Monday to give the appeals court time to rule on the FTC’s stay request, which is the remaining obstacle to moving ahead.

“We...hope for a quick ruling that legally clears the way for the merger to move forward,” Paul T. Denis, a lawyer for Whole Foods, said Monday.

The company also said it has extended its tender offer to purchase all outstanding shares of Wild Oats until next Monday.

More important than the tender offer is the purchase agreement the companies reached in February, which includes a target date for completing the deal by Aug. 31. Denis said during a district court hearing Aug. 1 that the transaction might fall apart if it hasn’t been completed by then.

If the appeal court grants a stay pending the FTC’s appeal, which could take months to resolve, the deal could potentially be in jeopardy.

The FTC declined comment Monday, according to Mitch Katz, an agency spokesman.

Whole Foods’ outspoken chief executive John Mackey had said July 31 the company would act quickly at the first opportunity to close the deal.

“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.”

Whole Foods agreed to acquire Wild Oats in February for $18.50 per share. The FTC sued in June to block the deal on antitrust grounds, arguing that the two chains compete in a narrow market of “premium, natural and organic supermarkets,” and the combination would stifle competition and lead to higher prices.

The deal wouldn’t hurt consumers, the companies say, because of competition from conventional supermarkets, such as Safeway Inc. and Kroger Co., which are selling increasing amounts of organic products.

Friedman’s 93-page ruling remains under seal, but a redacted version is expected to be released as early as Tuesday. Attorneys who have read it say the judge agreed with the companies that conventional supermarkets are strategically repositioning to compete with organic stores.

The case made headlines for unusual reasons: Mackey was revealed to have talked down Wild Oats shares on Internet message boards under a pseudonym ahead of the deal’s announcement. Federal regulators are probing his actions.

Shares of Whole Foods fell $83 cents, or 1.9 percent, to close at $43.47 Monday, while shares of Wild Oats fell 12 cents to close at $17.78.