M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, August 17, 2007

Whole Foods to Raise Wild Oats

Judge Paul Friedman of the Federal District Court for the District of Columbia, today denied the FTC's request to preliminarily enjoin Whole Food's pending acquisition of Wild Oats.  The order is accessible here.  The FTC subsequently released a press release stating

Federal Trade Commission Competition Director Jeffrey Schmidt expressed regret at the federal district court decision announced today in the Whole Foods/Wild Oats case, calling it a loss for both consumers and competition.

We respect the Court’s decision, which we currently are reviewing. We brought this challenge because the evidence before us showed that the merger would most likely result in higher prices and reduced choices for consumers who shop at premium natural and organic supermarkets,” Schmidt said. “We are reviewing our options.”

. . . . The federal district court decision announced today allows the transaction to proceed, pending the FTC’s filing of a request for emergency stay with the district and appellate courts prior to its appeal being heard. The Commission also has authorized the staff to act on its administrative complaint to permanently enjoin the merger.

As I stated when the FTC initially filed this case:

According to the Commission

"In defining the relevant markets, the Commission found that premium natural and organic supermarkets, such as Whole Foods and Wild Oats, are differentiated from conventional retail supermarkets in several critical respects. These include the breadth and quality of their perishables – produce, meats, fish, bakery items, and prepared foods – and the wide array of natural and organic products and services and amenities they offer. In addition, premium natural and organic supermarkets seek a different customer than do traditional grocery stores. Whole Foods’ and Wild Oats’ customers are buying something more than just the food product – they are seeking a shopping “experience,” where environment can matter as much as price."

The Commission's position here is similar to the one it took when it successfully blocked the merger of Staples and Office Depot.  I am no antitrust expert but I am bit skeptical of the Commission's view of this market as an "experience" rather than a simple opportunity to buy higher quality natural or organic food which can otherwise be available elsewhere.  This is particularly true since it would appear that barriers to entry are low and there are many other prospective and real competitors even in a narrowly defined organic and natural foods market. 

Once the opinion is disclosed (it was filed under seal), we will be able to ascertain whether or not the Office Depot doctrine is now dead and confined to its particular facts.  But the FTC's case here appeared to almost exclusively rely on the actions and statements of Whole Foods co-CEO John Mackey who, among other things, was posting on the Yahoo chat board for Wild Oats using the handle Rahodeb (his wife's name spelled backwards).  But as I stated before "just because you have a dumb CEO still doesn't justify the FTC actions here challenging Whole Foods' proposed acquisition of Wild Oats.  As far as I know, there is no stupidity provision in the antitrust laws though some may argue there should be one in the law generally." 

The FTC will now attempt to raise an emergency appeal up to the D.C. Circuit.  Even if the appeal is denied, depending upon the grounds of the opinion, Whole Foods still has a hard decision to make.  The FTC indicated in its press release that it will continue to pursue this action.  And Whole Foods is not required to complete its tender offer if either of the following conditions exist:

(a)    there shall have been any, law, decree, judgment, order or injunction, promulgated, enacted, entered, enforced, issued or amended by any governmental entity that would, directly or indirectly: . . . . (ii) impose material limitations on the ability of WFM, Purchaser or any of their respective subsidiaries or affiliates to acquire or hold, transfer or dispose of, or effectively to exercise all rights of ownership of, some or all of the Shares, including the right to vote the Shares purchased by it pursuant to the Offer on an equal basis with all other Shares on all matters properly presented to the stockholders of Wild Oats. . . .

(b)   there shall be pending any action, proceeding or counterclaim by any governmental entity challenging the making or consummation of the Offer or the Merger or seeking, directly or indirectly, to result in any of the consequences referred to in clauses (i) through (iii) of subparagraph (a) of this paragraph 2;

The FTC administrative action, which the FTC asserts will continue no matter the outcome of its appeal, almost certainly meets the second condition.  Whole Foods may have significant comfort in the District Court opinion, but the grounds for granting a final judgment and a preliminary injunction are different.  Depending upon the basis for the court's decision denying an injunction, Whole Foods still may bear significant risks that the FTC may ultimately win.  To the extent this risk exists Whole Foods must decide whether to close the offer and bear it.  Hopefully, John Mackey will display better judgment in this decision than in his other actions.      

For more on the Whole Foods/Wild Oats deal see my prior posts:

Would the Whole Foods CEO Have Violated the Wild Oats Ethics Policy?

The Whole Foods CEO Mea Culpa

Stupid CEO Tricks

The FTC Sows its Wild Oats


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