FTC, Whole Foods Battle On

The Federal Trade Commission, twice defeated already in its effort to block Whole Foods Market's acquisition of Wild Oats Markets, is seeking to undo the merger. In court filings last week, the FTC argued that although the acquisition has already taken place on paper, the two entities are still essentially operating separately and the deal should be nullified. In August, the U.S. District

WASHINGTON — The Federal Trade Commission, twice defeated already in its effort to block Whole Foods Market's acquisition of Wild Oats Markets, is seeking to undo the merger.

In court filings last week, the FTC argued that although the acquisition has already taken place on paper, the two entities are still essentially operating separately and the deal should be nullified.

In August, the U.S. District Court here denied the FTC's request for a preliminary injunction to block the deal on antitrust grounds, and an initial appeal was also denied. Whole Foods completed the $700 million acquisition within the following days.

At the time, the FTC had argued that the merger would violate antitrust laws because it would consolidate the two largest “premium natural and organic” food retailers and allow them to raise prices.

Now, the FTC is arguing that the District Court overstepped its authority in not granting the FTC's request for an injunction.

“The District Court's decision, which denied the Commission's application for a preliminary injunction preventing Whole Foods' acquisition of Wild Oats Markets, contains fundamental legal errors that threaten the Commission's performance of its law enforcement mission,” the FTC said last week in requesting a speedy hearing to break up the deal.

A spokeswoman for Whole Foods declined to comment to SN.

Chris MacAvoy, a partner in the Washington office of Howrey LLP, said the FTC faces “a difficult road” in seeking its appeal.

“The thrust of the FTC's argument is that they believe the District Court held the agency to too high a standard,” he told SN. “They are saying the District Court should have blocked the merger merely on finding that the FTC had raised a credible argument.

“They are arguing that the FTC and not the District Court should be the ultimate arbiter of the legality of the merger,” he added. “They argue that the District Court got too far into the merits.”

If the FTC is successful in getting an appeals court to hear its case, both sides would file written briefs, followed by an oral argument before a three-judge appeal panel, MacAvoy explained. The FTC has requested that the process be expedited.

“It seems more than a little inconsistent for the FTC to file a brief [last week] saying that the integration is only partial, therefore [they] should have an expedited appeal,” he pointed out. “It makes you wonder how strongly they felt about their argument in the first place that there was going to be irreparable harm if the FTC didn't enjoin [the merger] from closing.”

In making its case for an expedited appeal, the FTC noted that Whole Foods itself has said that many of the Wild Oats stores it acquired will continue to operate under their current banner for some time, indicating that the merger is still reversible.

“Whole Foods' own pronouncements establish that the consummation of the merger on paper does not mean that that the integration of the two companies is complete,” the FTC said in a court filing. “It is that integration that the Commission seeks to prevent in this action.”

A victory on appeal by the FTC would set a precedent, MacAvoy said.

“The argument about [the District Court's role] has been raised and debated around the country, and the lower federal courts have not been uniform in the way they view this,” he said. “Here the FTC is trying to get the District of Columbia Court of Appeals to come out with a ruling that would be very, very weighted in the Commission's favor.”