Published on: July 30, 2008The Court of Appeals for the D.C. Circuit ruled yesterday that the lower US District Court of Appeals in Washington, DC, made a mistake when it allowed the $565 million acquisition of Wild Oats by Whole Foods to go ahead without issuing a preliminary injunction that would have halted the process pending a hearing.
The case now goes back to the US District Court of Appeals, which is charged with reconsidering the antitrust implications deal – even though the purchase of Wild Oats was completed a year ago, and Whole Foods has closed 12 stores and sold off 35 others, while rebranding many Wild Oats stores as Whole Foods.
The Federal Trade Commission (FTC), in challenging the deal, has consistently maintained that it was against the best interests of consumers and would result in a near-natural/organic monopoly that would inevitably raise prices. The FTC has defined Whole Foods and Wild Oats as being the dominant players in the small natural/organic segment.
“We are pleased by today's decision of the appeals court in the Whole Foods matter and are looking forward to future proceedings before the district court, leading to a full trial,'' Jeffrey Schmidt, director of the FTC's Bureau of Competition, said in a statement.
The opposing argument, made by both Whole Foods and Wild Oats, is that they are small players in a much bigger supermarket segment, and that organic/natural food sales are expanding to such an extent in so many formats that any kind of monopoly is impossible. Whole Foods said that it will consider an appeal if the new court decision does not go its way. “Meanwhile,” it said, “it’s business as usual.”
In its coverage of the matter, Bloomberg reports that while analysts seem to feel that the courts will not try to undo a year-old deal – likening it to unscrambling an egg – it is possible that the courts could try to force Whole Foods to divest some stores.
- KC's View:
- I heard about this ruling when I got off a plane yesterday afternoon, when a newspaper reporter called me looking for a reaction. I almost dropped my iPhone.
From the beginning, I have felt that the FTC was completely wrong in how it assessed this deal and the role of Whole Foods and Wild Oats in the broader supermarket industry. The FTC clearly doesn’t understand that everybody and his brother has started selling natural and organic foods. The guys at the FTC probably don't even shop. (I’ve always believed that the judge who decided against the preliminary injunction does his own shopping, and therefore knows exactly what he’s talking about.)
Furthermore, the FTC has always alleged that the deal would cause the cost of natural and organic foods to go up, and therefore hurt consumers. While indeed food prices have gone up, the news reports that I’ve been reading have said that all food prices have gone up. And Whole Foods’ reputation for high prices – earned long before it tried to buy Wild Oats – actually has hurt its sales, and the company has been trying to promote its deals as a way of attracting customers. (Of course, it chose a slogan already being used by Stop & Shop, and then it had to change course again.) And Whole Foods’ stock price is down something like 45 percent.
In other words, it isn’t like the deal to acquire Wild Oats turned Whole Foods into a impervious and unavoidable organic juggernaut. Far from it.
I am reminded of something George Bernard Shaw once said: “Better never than late.”
It’d be nice if the guys at the FTC spent their time reading a little Shaw, rather than engaging in a series of legal maneuvers that are ill-advised and chaos-inducing.
Last time I checked, the federal government was forecasting a deficit of more than $482 billion. I know that the amount of money being spent to prosecute this case is a mere drop in the bucket compared to that number, but hell, you’ve got to start somewhere. Cut off the purse strings to the guys at the FTC who have taken an irrational view of the Whole Foods-Wild Oats deal…especially because these are the same dolts who decided not to challenge Rupert Murdoch’s purchase of the Wall Street Journal, which strikes me as a lot more harmful to competition and the public good than Whole Foods buying Wild Oats.