Whole Foods Free to Buy Wild Oats

Court Denies FTC Request to Stay Merger, Ending Battle

An appeals court yesterday removed the final obstacle standing in the way of a merger between Whole Foods and Wild Oats, setting the stage for the nation's two largest sellers of organic and natural foods to combine operations.

The appeals court order all but ensures that the $565 million transaction will move forward quickly despite protest by the Federal Trade Commission, which sought last-minute intervention to block the merger on the grounds it would lead to higher prices and less competition.

"We are pleased to have cleared what we expect to be our last legal hurdle," Whole Foods chief executive John Mackey said in a statement. The company's tender offer for Wild Oats expires at 5 p.m. Monday, but the transaction could close as early as today.

A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit late yesterday rejected an FTC emergency request that would have barred the companies from merging while the case proceeded through the courts.

In a brief order, the appeals court said that regulators had "raised some questions about the district court's decision" but had not met the high legal burden of showing they were likely to prevail on appeal.

FTC representatives did not return calls or e-mail messages seeking comment on the result of their prolonged fight. The agency first sued to scotch the deal in June.

"That's basically it," said David Balto, a former FTC official who filed court papers on behalf of consumer groups supporting the agency's challenge. "That's unfortunate because the judge's decision was wrong on a number of counts and the FTC presented a very persuasive case."

In a 93-page ruling dated Aug. 16 and made public this week, U.S. District Judge Paul Friedman concluded that Whole Foods, based in Austin, would not raise prices substantially after the merger because it faced increasing competitive pressure from traditional grocery chains. Safeway, Kroger and Wegmans, among others, are stocking their shelves with fresh produce, seafood and baked goods that have been the hallmark of their organic rivals, he wrote.

"Whole Foods and Wild Oats compete with other supermarkets, and other supermarkets compete with them," the judge wrote after an unusual two-day public hearing this month.

FTC lawyers argued that Whole Foods would shutter as many as 30 stores operated by Wild Oats, based in Boulder, Colo., once the deal was consummated. The government team also cited remarks by Mackey, who boasted that the merger would bring a halt to "nasty price wars," as ample evidence of the deal's anticompetitive impact.

But the judge played down the importance of Mackey's statements and focused on conflicting economic data and consumers' purchasing habits.

Whole Foods has 15 stores in Virginia, Maryland and the District; Wild Oats has none in the region.

Paul Yde, a former FTC lawyer who works as a partner at the Freshfields law firm in the District, said that regulators considered Mackey's statements "the kind of evidence that just compelled a lawsuit."

Earlier this week, Balto blasted the lower court judge's ruling and said Friedman's reasoning could open the floodgates on corporate mergers that would harm consumers.

The enforcement case has been closely watched by analysts in the grocery business and companies with pending merger bids across other industries. For instance, the stock prices for satellite radio companies XM and Sirius rose last week after the judge ruled favorably on the Whole Foods case.

But Yde predicted that the FTC's loss would not have sweeping consequences for future antitrust enforcement efforts. It might, however, make the agency more cautious about bringing a case "primarily motivated" by statements and internal documents predicting what they saw as a likely outcome of a merger, Yde said.