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VOL. 123 | NO. 148 | Wednesday, July 30, 2008

Court Reverses Whole Foods-Wild Oats Ruling

By CHRISTOPHER S. RUGABER | AP Business Writer

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WASHINGTON (AP) - 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 overturned Tuesday a lower court ruling from last year that allowed Whole Foods Market Inc. to acquire Boulder, Colo.-based Wild Oats Markets Inc.

The 2-1 ruling sends the case back to the lower court for further consideration, but doesn't halt Austin, Texas-based 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 agency was pleased by the ruling.

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.

The lower court "underestimated the FTC's likelihood of success," Judge Janice Rogers Brown wrote for the Court of Appeals for the D.C. Circuit.

Judge David Tatel, in a concurring opinion, said the case is "unique" because the lower court can no longer grant a preliminary injunction now that the two companies are combining operations.

Instead, the district court could halt further integration of the companies or take similar steps, Tatel wrote. But he and Rogers also wrote that the lower court should take the fact that the acquisition has been closed into account.

Judge Brett Kavanaugh, in dissent, wrote that "the FTC's case is weak and seems a relic of a bygone era when antitrust law was divorced from basic economic principles."

Veronica Kayne, a former FTC antitrust official and now an attorney at Haynes & Boone in Washington, said the appeals court's decision could make it easier for the government to obtain preliminary injunctions blocking future transactions.

Whole Foods, which operated 194 stores before the deal, purchased the 110-store Wild Oats for $565 million.

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.

Shares of Whole Foods rose 17 cents to $22.20 in afternoon trading.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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