Court reverses Whole Foods-Wild Oats ruling

0 Comments | Deseret News (Salt Lake City), Jul 30, 2008 | by Christopher S. Rugaber Associated Press

WASHINGTON -- Whole Foods' long-running effort to acquire its rival organic supermarket chain Wild Oats isn't completely out of the legal woods yet.

A three-judge federal appeals court panel on Tuesday overturned a lower court ruling from last year that allowed Whole Foods Market Inc., based in Austin, Texas, to acquire Wild Oats Markets Inc., based in Boulder, Colo.

The 2-1 ruling sends the case back to the lower court for further consideration but doesn't halt Whole Foods' integration of the Wild Oats chain or require that the deal be undone.

However, if the district court ultimately rules in favor of the Federal Trade Commission, which sought last year to block the deal, it could disrupt Whole Foods' efforts to combine the companies.

Whole Foods spokeswoman Kate Lowery said the company is disappointed with the decision and is "evaluating its legal options," which include asking all 10 judges on the appeals court to review the case.

Jeffrey Schmidt, director of the FTC's Bureau of Competition, said the ruling pleased the agency.

The FTC argues that the transaction would stifle competition by combining the two leading organic supermarket chains and lead to higher prices.

Whole Foods contends that competition from conventional supermarkets such as Safeway Inc. and Kroger Co., which are selling increasing amounts of organic food, keeps prices low.

The agency sought a preliminary injunction to temporarily block the deal so it could hold its own administrative proceedings to determine whether the transaction violated antitrust laws.

But Judge Paul Friedman of the U.S. District Court for the District of Columbia sided with Whole Foods in a ruling last August, and the companies then closed the acquisition.

Regulators usually throw in the towel if they fail to secure a preliminary injunction, due to the difficulty of unwinding a deal once it's complete. What makes the Whole Foods case unusual is that the FTC has pressed its case, antitrust experts say.

FTC officials complain that the burden of proof imposed by Friedman was too high.

The appeals court ruled that the district court hadn't given enough weight to the FTC's evidence that conventional supermarkets aren't close competitors to the organic chains and therefore won't keep their prices low.

The FTC only needs to show that it would likely prove its case in order to secure the preliminary injunction, the appeals court said.

A lawyer for Whole Foods said in April that the company had already sold 35 of Wild Oats' stores and closed 12 more. Another third of the remaining Wild Oats stores have been converted to Whole Foods outlets.