WASHINGTON—A government antitrust lawyer on Wednesday argued that comments made in e-mail and online by Whole Foods’ chief executive—including a reference to avoiding “nasty price wars”—highlight the need to block the company’s purchase of rival Wild Oats Markets.
Two days of hearings on the proposed deal ended Wednesday, with Whole Foods countering that the acquisition would help it compete with larger supermarket chains. Judge Paul L. Friedman of U.S. District Court for the District of Columbia is expected to rule by mid-August on whether to allow Whole Foods’ $565 million purchase to proceed.
The Federal Trade Commission is trying to stop the deal out of concern that it would lead to higher prices for customers of the fancy and organic foods markets.
Michael Bloom, a lawyer for the FTC, quoted CEO John Mackey’s comments in an e-mail to Whole Foods Market Inc.’s board that the purchase of Wild Oats Markets Inc. would allow the company to “avoid nasty price wars.”
“Nasty price wars are nasty to Mr. Mackey,” Bloom said. “But they are not nasty to consumers.”
Bloom also said Mackey has been “candid” about Whole Foods’ intention to close some Wild Oats’ stores, which Bloom said would limit customers’ alternatives.
“He’s candid regardless of which name he uses,” Judge Paul L. Friedman said, referring to Mackey’s postings on online financial Web sites under the screen name “rahodeb,” an anagram of his wife’s name, Deborah.
Mackey’s online postings have attracted the attention of the Securities and Exchange Commission, which has said it is informally investigating them.
Whole Foods’ lawyer, Paul Denis, sought to discount Mackey’s comments, calling them a “sideshow.” He said Mackey’s statements at a deposition disparaging Wild Oats and other supermarkets simply reflect that he doesn’t like his competitors.
“That’s not illegal,” Denis said.
A far more important issue is whether the transaction would result in higher prices, which he said the FTC has failed to prove.
Judge Friedman asked several questions that focused on another key issue in the case: whether Whole Foods and Wild Oats compete in a limited market of “premium natural and organic supermarkets,” as the FTC argues, or whether they also compete against traditional grocery chains such as Safeway Inc. and Kroger Co., which are selling increasing amounts of organic food.
Denis showed a video from Mackey’s deposition, in which the chief executive said the company’s same-store sales have declined as other chains have ramped up their offering of organic products. Same-store sales are sales in stores open for at least a year.
In addition, the company introduced its 365 private label in response to the increasing competition from chains such as Safeway, Trader Joe’s and Wegman’s, Denis said.
Bloom, meanwhile, said that Whole Foods carries 30,000 organic products, while a traditional chain might carry only 1,200.
Whole Foods and Wild Oats “are radically different enterprises from conventional supermarkets,” Bloom said.
The FTC has said that the purchase would lessen competition in 25 markets—18 where the two companies overlap and seven where Boulder, Colo.-based Wild Oats would enter if they remain independent.
Antitrust experts said that Mackey’s internal e-mails and online postings, while important, may not be enough to convince the judge to block the deal.
Mike Cowie, an attorney at Howrey LLP and former FTC antitrust official, said a key question “is whether the FTC has set forth credible, robust economic evidence” that would show the combination would be anticompetitive.
The FTC’s initial complaint, filed in June, was largely focused on Mackey’s comments, Cowie said.
Kevin Murphy, an economist at the University of Chicago, testified Tuesday on behalf of the FTC and said profit margins of Wild Oats stores declined when Whole Foods entered its markets, an indicator of increased competition.
Austin, Texas-based Whole Foods operates 190 stores, while Wild Oats has about 110. Both are relatively small players in the grocery industry—Kroger operates over 2,400 stores.
Judge Friedman is expected to rule by mid-August on the FTC’s request for a preliminary injunction. Friedman said his ruling will likely be appealed. Most companies back off from transactions if the FTC wins a preliminary injunction.
Shares of Whole Foods jumped $2.16, or 5.8 percent, to $39.20 in midday trading, a day after reporting second-quarter earnings ahead of estimates. Wild Oats’s shares fell 40 cents, or 2.5 percent, to $15.70, below Whole Foods’ offering price of $18.50 per share.
