Whole Foods loses in court

Wild Oats merger re-examination due

July 30, 2008|By Jerry Hirsch | Jerry Hirsch,LOS ANGELES TIMES

The purchase of Wild Oats Markets Inc. by rival organic foods purveyor Whole Foods Market Inc. turned a bit wilder than anticipated yesterday when a federal appeals court overturned a lower-court ruling that allowed the merger to go though.

The ruling comes almost a year after Austin, Texas-based Whole Foods purchased the 110-store Wild Oats for $565 million and brings up questions as to whether it would be possible to unwind the merger so long after the fact.

When the companies announced plans to merge in early 2007, the Federal Trade Commission moved to block the deal, arguing that it would give Whole Foods too much of the market for natural and organic foods and could result in higher prices.

The federal District Court ruled against the agency, saying it had not made a case for why the merger should be delayed.

But a three-judge appeals court said that was the wrong decision, and it sent the case back to the U.S. District Court for the District of Columbia for further consideration.

The ruling was a surprise to antitrust experts, said Mike Cowie, a former FTC assistant commissioner who is now a partner at Howrey LLP, a Washington law firm.

"This is an extraordinary situation for both the District Court and the FTC. No one can be sure about what happens now," Cowie said.

Unscrambling eggs

But typically, he said, it's very difficult in cases such as this to "unscramble the eggs."

"The courts have the power to grant relief on the FTC's complaint, despite the merger's having taken place, and the case is therefore not moot," Judge Janice Rogers Brown wrote in the 2-1 appellate court decision.

Specifically, the three-judge panel said the lower court erred when it ruled that the FTC's definition of what constituted the market for natural and organic foods was too narrow.

The FTC wanted a preliminary injunction to stop the takeover while it argued its position.

"The court should have taken whatever time it needed to consider the FTC's evidence fully," Brown wrote.

Not held unlawful

The FTC agreed. "We are pleased by today's decision ... and are looking forward to future proceedings before the District Court, leading to a full trial on the merits before the commission," Jeffrey Schmidt, director of the FTC's Bureau of Competition, said yesterday.

Whole Foods said it was evaluating its legal options and noted that "the decision acknowledges that neither the court nor the FTC has found the merger to be unlawful. ... We await the U.S. District Court's response so this issue can be resolved."

Shares of Whole Foods rose 36 cents in trading yesterday, closing at $22.39.

Jerry Hirsch writes for the Los Angeles Times.

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