AUSTIN, Texas — Whole Foods Market launched a verbal volley in its battle with the Federal Trade Commission over the chain's proposed acquisition of Wild Oats Markets last week with a 14,000-word blog post on Whole Foods' website.
John Mackey, chairman and chief executive officer, Whole Foods, used his blog entry to sharply criticize the FTC for the way it handled the investigation of the deal and to defend his own statements about the reasons for pursuing the merger.
“Instead of conducting a dispassionate, impartial and fair investigation into this merger, the FTC consistently behaved in a biased, adversarial, and arrogant manner, while engaging in ‘bullying tactics’ again and again and again,” Mackey wrote.
As previously reported, the FTC on June 6 said it had filed suit to block Whole Foods' proposed acquisition of Wild Oats on the grounds that it would reduce competition for consumers. A hearing is set to begin July 31.
In his blog, Mackey also revealed that Whole Foods had reached an agreement to sell the Henry's Farmers Market and Sun Harvest chains, which Wild Oats operates in California and Texas, respectively, if the acquisition is completed. Whole Foods the next day issued a statement detailing an agreement to sell both banners, totaling 35 stores, and a Riverside, Calif., distribution center to Smart & Final, the Los Angeles-based warehouse chain that was recently acquired by private equity firm Apollo Capital Management, New York. The two banners account for about 30% of Wild Oats' $1.2 billion in annual sales, Mackey said.
“These farmers markets primarily sell cheaper, and frequently lower quality produce, as well as a number of products that don't meet Whole Foods quality standards,” Mackey said in the blog. “They don't fit into Whole Foods' store strategy going forward.”
Analysts' estimates for the proceeds from the sale of Henry's and Sun Harvest ranged from $90 million to $150 million-plus. Apollo also noted in a filing with the antitrust case that it had expressed interest in acquiring the entire Wild Oats chain.
Mackey's blog was posted on the same day that the FTC released the full version of its complaint against Whole Foods, which quotes Mackey as telling Whole Foods' board of directors that the acquisition of Wild Oats would “avoid nasty price wars” in several markets and would eliminate the opportunity for traditional supermarket chains to acquire Wild Oats and create a stronger competitor.
Although the statements seem to support the FTC's assertion that Whole Foods and Wild Oats are indeed each other's closest competitors and thus could be considered to operate within a narrow market, some antitrust experts said the government will have to present much more detailed financial information in court.
“The CEO's comments that the FTC has cited in its complaint are certainly not the type of things you want to see, as a lawyer representing a company in a merger,” said Chris MacAvoy, a partner in the Washington, D.C., office of Howery LLP who has worked on several supermarket antitrust cases. “But, they should not be what determines the outcome of the case, and in the end I don't think they will be. The issue is not what people say, but what the merger would or would not allow Whole Foods to do, and that's an economic question.”
He said Mackey's comments quoted by the FTC in its complaint can be characterized as “wishful thinking — and that type of wishful thinking does not violate antitrust laws.”
One of Mackey's complaints about the way the FTC handled its investigation relates to the question of product pricing, usually a key element of the government's antitrust cases. In his blog Mackey contends that the FTC did not request any information related to pricing until very late in the process.
MacAvoy said he would be surprised if the FTC had not done some sort of pricing analysis prior to filing for an injunction against the merger.
Mackey asserted in the blog that Whole Foods views Trader Joe's as a more relevant competitor on price than Wild Oats. However, the FTC also quoted Mackey as saying Trader Joe's and Whole Foods complement each other well in close proximity because Trader Joe's focuses on grocery products, while Whole Foods focuses on perishables. Mackey in his blog also described the vigorous competition Whole Foods faces from such chains as Safeway and Wegmans.
Pricing, quality and service would all improve at Wild Oats under Whole Foods' ownership, he said.
