Appeals Court Ruling Could Overturn Whole Foods Deal 

August 2008

Whole Foods Market’s $565 million purchase of Wild Oats Markets Inc. should be re-examined by a federal judge to determine whether it violated antitrust rules, an appeals court in Washington, DC ruled on July 29.

In a 2-1 decision, a federal appeals court said that U.S District Court Judge Paul Friedman should have taken more time to consider Federal Trade Commission claims that the purchase violated antitrust law and would harm consumers.

However, instead of dismantling the integration process which is well under way, the appellate panel sent the case back to the lower court to reconsider its decision. While it is unlikely a total breakup of the deal would be ordered, if the district court agrees with the appellate court’s ruling, there could be a further divestiture of stores. Whole Foods, which currently operates about 270 stores and amassed annual sales of $6.6 billion, has closed or sold about 45 stores since the Wild Oats deal was completed.

After much legal scuffling last summer, Whole Foods, the largest U.S. natural-foods grocer, finally completed the purchase shortly after Freidman’s August 16, 2007 ruling. The FTC later asked a Washington, DC appeals court to stop the merger, but was denied.

“The court should have taken whatever time it needed to consider the FTC’s evidence fully,” Judge Janice Rogers Brown wrote for the divided court. “The district court must independently exercise its discretion considering the circumstances of the case, including the fact that the merger has taken place.”

A Whole Foods spokeswoman, Kate Lowery, said that Whole Foods is disappointed with the decision and is evaluating its legal options, one of which is to ask that all 10 appellate judges review the case.

Another Whole Foods spokeswoman, Libba Letton, noted that the ruling provided a roadmap for Judge Friedman to once again deny the FTC’s request for a preliminary injunction.

The government originally claimed the acquisition would hurt consumers by driving up prices and cutting competition in the market. The Austin, TX based retailer, which was started by current CEO John Mackey in 1980, countered by saying that natural and organic retailing had widely proliferated in recent years and acquiring Wild Oats would not diminish competition.

In his dissent, Judge Brett Kavanaugh said the FTC case against the acquisition is “weak,”' and that there is no good legal basis to block further implementation of the merger.
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