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The Federal Trade Commission (FTC) yesterday filed court documents intended to bolster its case that the proposed $565 million acquisition of Wild Oats by Whole Foods should be blocked, but in doing so created a controversy about the release of supposedly confidential and proprietary information.

In the filing, the FTC charges that if the acquisition takes place, Whole Foods plans to close as many as 30 Wild Oats stores. In addition, the FTC said that it could prove that the opening of a Whole Foods store could reduce sales at a nearby Wild Oats by as much as 30 percent, that Whole Foods believed that the shutting of the … stores could increase revenue at nearby Whole Foods stores by as much as 90 percent, and that the takeover will send as many as 80 to 90 percent of Wild Oats shoppers to Whole Foods.

In addition, the FTC charges that Whole Foods sets conditions for its suppliers that prevent them from selling to Wal-Mart.

According to the New York Times story, “Many of the details in the documents, which FTC lawyers filed electronically, were not meant to be released publicly, but words intended to be inaccessible were actually just electronically shaded black. The words could be searched, copied, pasted and read in versions downloaded from court computer servers. Court officials realized the mistake and replaced the filing with a version using scanned pages of the edited documents. The Associated Press downloaded the document from the public server before it was replaced by an edited version.”

Whole Foods released a statement yesterday saying: “Whole Foods Market is investigating the apparent improper release by the Federal Trade Commission of confidential proprietary business information belonging to Whole Foods Market, Wild Oats and other third parties, in violation of the Court's confidentiality order. In fact, the District Court has twice ordered this information to be held under seal.

“Until the merger is complete, Whole Foods will not have sufficient information, including store level financial statements, to make any final decisions regarding future operations. All information shared with the FTC was done so with the reasonable understanding that it would be handled appropriately.”

In addition, Bloomberg is reporting that Wild Oats is withholding certain severance payments from its former CEO Perry Odak, in apparent retaliation for Odak’s recent testimony in a separate antitrust case that Whole Foods is the only retailer capable of taking business away from Wild Oats. However, Wild Oats is denying this allegation.

The FTC is not commenting on the situation.
KC's View:
The FTC would be well advised to keep its mouth shut until the courts hand down a ruling. To this point – whether it was by accident or on purpose – it appears to have said quite enough, and analysts say it probably hasn’t helped its case.

Me, I think it is much ado about nothing.

Apparently if the deal goes through, Whole Foods will shut down less than half the combined fleet of stores that it owns. Gee, I’m shocked. Shocked. It isn’t hard to imagine that there are 30 or so locations out there where Whole Foods and Wild Oats go head to head, and it would only make good business sense to shut the lesser locations down.

If those stores get closed, it seems entirely reasonable to assume that at least some of them will go to other food stores. If those locations were so strong demographically that both Whole Foods and Wild Oats thought they could have stores there, it also seems reasonable to believe that these other food stores might sell natural and organic products. Which sort of works against the anti-competition argument being made by the FTC.

Now, let’s parse the following paragraph: “The opening of a Whole Foods store could reduce sales at a nearby Wild Oats by as much as 30 percent, that Whole Foods believed that the shutting of the … stores could increase revenue at nearby Whole Foods stores by as much as 90 percent, and that the takeover will send as many as 80 to 90 percent of Wild Oats shoppers to Whole Foods.”

Well, of course the opening of a Whole Foods reduces the sales and attracts shoppers away from nearby Wild Oats stores; Whole Foods is generally believed to be the bigger competitor, and that’s why it is doing the acquiring here, not Wild Oats. There have been questions for years about whether Wild Oats could even continue to survive on its own, which is one of the reasons that Whole Foods stepped in and took advantage of the opportunity.

I still think that it is possible that if and when the deal is closed, Whole Foods will be able to reduce its prices because of greater buying power. But if it doesn’t, there are plenty of places where people will be able to get cheaper organic foods … and there are more sources of such product almost each day.

The FTC’s filing of a late affidavit in this case strikes me as a kind of desperation ploy. I hope it backfires.