AUSTIN, Texas—Whole Foods Markets and Wild Oats Markets plan to fight in court for their proposed merger, as competition officials at the Federal Trade Commission (FTC) announced plans to file suit against the acquisition on the grounds it would hurt competition in the natural and organic grocery store market. Reported in late February, the $670 million acquisition-merger was positioned as a way for Whole Foods to keep up with the growing participation by mainstream supermarkets (Kroger, Wal-Mart, etc.) in the natural and organic category; this is also how the defense against FTC will be positioned.
“FTC has failed to recognize the robust competition in the supermarket industry, which has grown more intense as competitors increase their offerings of natural, organic and fresh products, renovate their stores and open stores with new banners and formats resembling Whole Foods Market," said John Mackey, chairman and chief executive officer (CEO), in a statement. “Evidently the FTC does not appreciate the many benefits for consumers of the proposed merger, including our plan to invest capital in and improve many of the stores currently owned by Wild Oats.”
However, FTC argued Whole Foods and Wild Oats compete in a market that is separate from the traditional grocery market and seek out different customers than traditional grocery stores. FTC contends premium natural and organic supermarkets, such as Whole Foods and Wild Oats, are differentiated from conventional retail supermarkets in several critical respects, including the breadth and quality of their perishables (produce, meats, fish, bakery items and prepared foods), and the wide array of natural and organic products, services and amenities they offer. They further noted such supermarkets seek a different customer than do traditional grocery stores.
“Whole Foods and Wild Oats are each other’s closest competitors in premium natural and organic supermarkets and are engaged in intense head-to-head competition in markets across the country,” said Jeffrey Schmidt, director of the FTC Bureau of Competition. “If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers. That is a deal consumers should not be required to swallow.”
Claiming the transaction would violate federal antitrust laws by eliminating the substantial competition between these two uniquely close competitors, Schmidt has authorized his staff to seek a temporary restraining order and preliminary injunction in federal district court to halt the deal pending an administrative trial on merit.
Wild Oats issued a statement that it will cooperate with Whole Foods to challenge FTC’s move to block the merger. “We continue to believe very strongly that this merger is in the best interest of all our constituents,” said Greg Mays, chairman and CEO, Wild Oats Markets. “Our associates will benefit from greater opportunities working for a larger combined company, our shareholders will benefit from value creation, and our consumers will benefit from a stronger product offering and the capital investment to upgrade our stores. While we disagree with the FTC’s position and believe it is without legal and factual merit, we are confident that, once presented with the facts, the court will agree that this merger is pro-competitive and the FTC’s application for an injunction will be denied.”