Whole Foods Wild Oats takeover
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Whole Foods Gearing Up for Suit Against FTC

December 10, 2008 03:30 PM
by Anne Szustek
Whole Foods filed a lawsuit against the Federal Trade Commission this week, in the latest legal battle between the grocery store and regulator.

Whole Foods CEO Says FTC Leading “A Rigged Game”

The natural foods supermarket’s suit, filed Monday, alleges that the nation’s trade regulator “publicly prejudged the case,” violating due process and the Administrative Procedures Act, Bloomberg reported.

The FTC is renewing its antitrust review of Whole Foods’ August 2007 $565 million buyout of Wild Oats after an unsuccessful bid to block the deal at the time.

Whole Foods CEO John Mackey told Bloomberg the FTC is running “a rigged game” and that Whole Foods “can’t get a fair trial…They’ve already said we’re guilty. They’ve already said our expert testimony is garbage.”

The grocery chain is also to meet with members of Congress with the hopes of curbing the FTC review.

Last month an appeals court in D.C. shot down a Whole Foods request to have the case heard in court, rather than an FTC trial. At that time, David Wales, the FTC’s competition chief, was quoted as saying, “The merger is unlawful and should be undone,” according to The Wall Street Journal.

The FTC argues that Whole Foods has a major advantage in the “premium and natural” grocery store segment. Mackey disputes that, pointing out that in the recession, it has lost market share to more budget-friendly supermarkets.

“There’s only one place where Whole Foods has a monopoly and that’s in the imagination of the lawyers at the Federal Trade Commission,” Mackey said at a Tuesday press conference, Bloomberg reported. “How can a monopolist have negative same-store sales?”

Shares of Whole Foods—a Wall Street darling a few years ago thanks to steady double-digit same-store growth—have gone down more than 70 percent in value over this year. Mackey has said that he regrets the Wild Oats buyout, which in addition to legal strains, has meant steep expenditures for store upgrades. “If I could get the money back, I’d take it,” the CEO was quoted by The Wall Street Journal as saying.

A $425 million investment from Green Equity Investors for a 17 percent stake in Whole Foods preferred stock gave the grocer some leeway with its debt load. Plus the store is working to make the store’s image seem more accessible to customers by way of special promotions and discounts.

Background: Whole Foods’ Wild Oats Takeover and Pseudonymous CEO Message Board Postings

Whole Foods bought Wild Oats, its chief competitor in the organic and natural foods segment, in August 2007 for $565 million. The FTC unsuccessfully contested the merger, arguing that the purchase would reduce competition in the market place.

The FTC prevailed in July, however, when a Washington, D.C. court of appeals ruled that a “district judge should have taken more time to consider the agency’s claims,” writes Bloomberg. The agency won again in November when a Washington, D.C. court of appeals rejected a Whole Foods request for a federal court rehearing.

The Whole Foods-Wild Oats merger was also complicated by the revelation that Mackey, Whole Foods’ CEO, was touting his company’s stock on Yahoo Message Boards.

Over the course of eight years, Mackey, under the screen name “Rahodeb,” derived from Deborah, the name of his wife, also, according to the FTC, insinuated that the merger would lend Whole Foods a clear advantage in the grocery industry.

On one posting, he wrote that "Whole Foods is systematically destroying their [Wild Oats] viability as a business—market by market, city by city."

Mackey's actions have caused analysts and legal professionals to question his ethical fitness as a CEO and the legality of his posting opinions under a nom de plume.

Discovery of Mackey’s posts under the pseudonym “Rahodeb” prompted an investigation by the U.S. Securities and Exchange Commission, which has now cleared Mackey of any wrongdoing.

Less than a year after he was discovered posting anonymously in online forums, Mackey began blogging again in May.

In a May 21 post on the Whole Foods blog, Mackey expressed his desire to “respond openly and truthfully” to the accusations of 2007. He said online communities were a “very useful forum for me to explore various ideas and theories, and to have them discussed, criticized and debated.”

Mackey apologized to Whole Foods and said if he had the chance to do it again, he “certainly would choose not to have ever participated in the Yahoo! online financial communities.”

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