The Federal Trade Commission is challenging the proposed acquisition of Boulder-based Wild Oats Markets Inc. by rival Whole Foods Market Inc., putting the marriage of the two largest players in the natural-grocery sector in limbo.
The FTC filed a lawsuit Tuesday aimed at blocking the deal, which was announced in February. Whole Foods is offering about $670 million for the company.
Wild Oats said in a press release that it will work with Austin, Texas-based Whole Foods to “vigorously challenge” the lawsuit and that the FTC’s action “is without legal and factual merit.”
“We continue to believe very strongly that this merger is in the best interest of all our constituents,” Wild Oats chairman and chief executive Greg Mays said in the release.
The FTC’s requests for more information related to the deal have caused the closing date of the merger to be pushed back three times.
A federal judge in Washington will soon be assigned the case, and it is expected that a trial could be concluded within several months, said Sonja Tuitele, a Wild Oats spokeswoman.
Analysts said the deal is in jeopardy, considering the FTC is seeking a temporary restraining order and preliminary injunction in U.S. District Court to halt the pending deal.
“We don’t think this deal (will) happen,” said Jerry Paul of Quixote Capital Management, a Greenwood Village-based money-management firm that invests in companies involved in mergers. “But I would not rule out another deal.”
Paul said other bidders would likely emerge for Wild Oats if the merger collapses. He said likely candidates include another industry player, such as supermarket giants Safeway Inc. or Kroger Co. Wild Oats could also become an acquisition target for private-equity firms.
Claude Wild, a former regional director for the FTC, said a Wild Oats combination with any of those other potential bidders would more easily pass regulatory scrutiny.
“It would likely (hold up) because of the way the FTC is defining the marketplace,” said Wild, now an antitrust lawyer with Greenberg Traurig in Denver.
A narrow industry view
Whole Foods chairman and chief executive John Mackey said the FTC is basing its decision on its assessment of the natural-foods marketplace rather than considering the entire supermarket sector.
“The 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,” he said.
Nonetheless, the FTC said in a statement that a Wild Oats- Whole Foods tie-in would hurt consumers.
“If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers,” Jeffrey Schmidt, director of the FTC’s Bureau of Competition, said in the statement.
Paul, the money manager, said the FTC relied on similar logic to bar a combination of Nestlé Holdings and Dreyer’s Grand Ice Cream.
The FTC used a narrow definition of the ice-cream industry when considering that deal, arguing that such a combination would eliminate competition and raise prices for “superpremium” ice cream, Paul said.
While Wild Oats and Whole Foods are among the largest players in the natural-foods industry, the two companies control a sliver of the overall supermarket sector.
In Colorado, for instance, Whole Foods operates seven stores and has 2.36 percent of the grocery market. Wild Oats counts 12 locations and holds 1.09 percent of the market, according to the most recent data from Shelby Reports of the Southwest, a trade publication.
Nationwide, Whole Foods operates 196 stores, while Wild Oats has 110 locations.
Another industry expert, George Whalin of Retail Management Consultants, said a merger between the two companies could still go through if Wild Oats and Whole Foods agree to shed some stores.
“Ultimately, Whole Foods and the FTC will come up with a number of stores that is palatable, and they’ll sell off the rest,” he said.
Shares of Wild Oats, which has a market capitalization of $512.78 million, ended Tuesday up 1.48 percent to $17.16. Shares of Whole Foods, which has a market capitalization of $5.72 billion, closed at $40.48, down 2.9 percent.
Staff writer Julie Dunn contributed to this report.
Staff writer Will Shanley can be reached at 303-954-1260 or wshanley@denverpost.com.
2.36%
Whole Foods’ share of the Colorado grocery market, with seven stores; it has 196 stores nationwide
1.09%
Wild Oats’ share of the Colorado grocery market, with 12 stores; it has 110 stores nationwide
