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A federal judge ruled yesterday that Whole Foods could go ahead with its $565 million acquisition of Wild Oats, refusing the grant the Federal Trade Commission (FTC) a temporary injunction that would have stopped the deal from taking place.

The FTC opposed the deal on the grounds that it would diminish competition in the marketplace and result in increased prices and fewer options for consumers. According to the Wall Street Journal, the FTC is not out of options – it could appeal the judge’s ruling, or “pursue its own administrative trial in a bid to scuttle the merger.”

The FTC said as of this posting that it is reviewing its options. Whole Foods said that it has agreed to comply with an FTC request not to attempt to close on the deal with Wild Oats until noon next Monday.

The rationale behind U.S. District Judge Paul L. Friedman’s ruling is unknown at this time, since his 93-page opinion has been sealed.

The crux of the argument, however, seemed to be how to define the marketplace. The FTC said that the organic/natural foods business was a distinct market in which Whole Foods and Wild Oats were the dominant players. The two chains, however, argued that their companies simply occupied one specific niche in the much larger supermarket industry, and that there is plenty of competition for the consumer’s food dollar in natural and organic categories.

Wild Oats has 110 stores in 24 states and in Canada, while Whole Foods has 194 stores in the United States, Canada and the United Kingdom.

Just this week, it what appeared to be a last ditch attempt to get Judge Friedman to rule in its favor, the FTC filed a motion saying that Whole Foods would close as many as 30 Wild Oats stores. In addition, the FTC said that it could prove that the opening of a Whole Foods store could reduce sales at a nearby Wild Oats by as much as 30 percent, that Whole Foods believed that the shutting of the … stores could increase revenue at nearby Whole Foods stores by as much as 90 percent, and that the takeover will send as many as 80 to 90 percent of Wild Oats shoppers to Whole Foods. And, the FTC charged that Whole Foods sets conditions for its suppliers that prevent them from selling to Wal-Mart.

However, the FTC filing may have backfired on the government, since the information in its filing ended up in the public domain, despite the fact that it was based on proprietary information provided by Whole Foods and was supposed to have remained sealed.
KC's View:
My guess is that Judge Friedman does at least some of his own shopping.

I’ve said from the beginning that the FTC’s conclusions about the marketplace seemed flawed, and that there appears to be plenty of competition in the marketplace for organic and natural consumer dollars. In fact, even while the judge was deliberating, Kroger announced a sizable expansion of its private label organic lines…and that could only have helped the Whole Foods case.

The FTC may be able to kill this thing through administrative means, but I hope the folks there have learned their lesson and skulk back to Washington to try to block a deal that really would hurt the public – the attempt by Rupert Murdoch to buy the Wall Street Journal.