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Big Organic:
Supermarket Pastoral |
Federal antitrust regulators plan to sue to block the proposed merger between Whole Foods Market and Wild Oats Markets, the largest and second-largest natural-foods grocers.
Whole Foods, which agreed to buy Wild Oats for $565 million in February, said it will "vigorously challenge" the Federal Trade Commission (FTC) in court and continue to pursue Wild Oats.
The agency is concerned the combined company will control too much of the U.S. natural-foods market and increase prices.
Whole Foods said Tuesday the FTC should instead consider the merger's effect on the overall supermarket industry, as Safeway, Wal-Mart and other grocers expand their natural and organic departments.
"If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality and fewer choices for consumers," Jeffrey Schmidt, director of the FTC's Bureau of Competition, said in a statement. "That is a deal consumers should not be required to swallow."
The commission voted 5-0 to authorize staff to seek a temporary restraining order. The complaint will be filed by today in U.S. District Court for the District of Columbia.
Wild Oats, based in Boulder, Colo., and Austin, Texas-based Whole Foods had earlier received two FTC requests for information about the proposed combination. Whole Foods had agreed to pay $18.50 a share for Wild Oats.
"There are serious issues that this transaction raises," said Andrew Klevorn, a partner at Eimer Stahl Klevorn & Solberg in Chicago who specializes in antitrust.
"It's the FTC going to the federal court and saying 'We think this transaction poses such a threat that you ought to stop it now.' "
Shares of Whole Foods fell $1.21 to $40.48 Tuesday. Shares of Wild Oats rose 25 cents to $17.16.
Whole Foods may decide to walk away from the deal because of the length and cost it may take to complete it, Klevorn said.
Even if Whole Foods wins in federal court, the FTC could still challenge it, a process that could take as long as five years.
"Even if you close the transaction, it always holds the risk of being undone by the FTC at a later date," Klevorn said.
Other grocery stores may be interested in buying Wild Oats should the merger with Whole Foods fall apart, Standard & Poor's analyst Joseph Agnese wrote in a note Tuesday.
The FTC's move is a "significant setback" for chances of the merger going through, he said.
The FTC hasn't blocked a retail merger on antitrust grounds in recent years, Klevorn said. In 1997, the agency stopped Staples' attempt to buy competitor Office Depot for $4 billion, saying it would harm competition in the growing market for office supplies.
Whole Foods and Wild Oats originally expected the purchase would be completed in April. It will probably take until the end of July for a court to rule on the planned FTC action, Whole Foods spokeswoman Kate Lowery.
Whole Foods, which has 195 stores in the U.S., Canada and Britain, would add 110 locations in 24 states and Canada by buying Wild Oats. Founded in 1980, the chain had sales of $5.6 billion last year.
Wild Oats was founded in 1987 with the purchase of Crystal Market, the only vegetarian natural-foods store in Boulder, and grew partly through the acquisition of small health-food stores. Revenue totaled $1.18 billion last year.
Whole Foods and Wild Oats "serve a unique niche," Klevorn said. "They are not like your run-of-the-mill, ordinary grocery store. At least that I'm sure is what the FTC is concluding."
source: 6jun2007
The Federal Trade Commission will sue to stop a pending merger between rival natural foods grocers Wild Oats Markets Inc. and Whole Foods Market Inc.
Boulder-based Wild Oats (NASDAQ: OATS) has agreed to be acquired by Austin-based Whole Foods (NASDAQ: WFMI). The deal was announced in February.
Wild Oats said Tuesday it was informed the FTC will file a federal lawsuit to block the acquisition.
Greg Mays, chairman and CEO of Wild Oats, said in a statement that the company disagrees with the FTC's position. He said the company is confident that the court "will agree that this merger is pro-competitive and the FTC's application for an injunction will be denied, thus allowing us to proceed forward with the merger. "
He said Wild Oats would cooperate with Whole Foods in fighting the FTC in court.
Whole Foods is offering $565 million, or $18.50 a share, for all of Wild Oats' stock. The definitive merger agreement also calls for Whole Foods to assume Wild Oats' debt.
Wild Oats has 110 stores in 24 states and in Canada, while Whole Foods has 194 stores in the United States, Canada and the United Kingdom.
source: 6jun2007
The federal government's move to block Whole Foods Market Inc.'s deal to buy rival Wild Oats Markets Inc. boils down to this question: Are they natural-food chains or grocery stores?
The Federal Trade Commission, which said yesterday it plans to file a lawsuit as soon as today in a Washington federal court to block Whole Foods from purchasing Wild Oats for $565 million, said the combination would reduce competition and quality and raise prices. It is taking the position that the natural- and organic-foods market is distinct from the wider grocery market, which is increasingly moving into the natural-foods niche. The natural-foods market is estimated at $46 billion, according to J.P. Morgan Securities. Based on their annual revenue, Whole Foods and Wild Oats together account for about 15% of that segment.
"If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality and fewer choices for consumers," Jeffrey Schmidt, director of the FTC's bureau of competition, said in a statement.
In its investigation, the FTC uncovered evidence that Whole Foods saw the deal as a way simply to eliminate its main rival in dozens of cities, lawyers close to the case said. The premium Whole Foods was willing to pay for Wild Oats and its plans to shutter many of those stores led investigators to suspect the deal would lead to higher prices for consumers, those close to the investigation said.
Whole Foods, of Austin, Texas, and Wild Oats, of Boulder, Colo., will rebut the contentions by arguing they compete against a wide variety of supermarkets, including national giants Wal-Mart Stores Inc., Kroger Co. and Supervalu Inc. Kroger, Supervalu and other conventional grocers have added fresher meats and produce in recent years as they have faced intensifying competition from Whole Foods to lure upscale shoppers. Even Wal-Mart last year began pressing suppliers to provide more organic foods.
The challenge would be one of the few brought under the Bush administration, which has broadly interpreted antitrust law to allow scores of mergers of direct rivals. A recent study presented at Georgetown University Law Center found that the Bush Justice Department's rate of merger challenges between 2002 and 2005 was the lowest of the past 20 years. The FTC, which shares antitrust enforcement, has been marginally more aggressive, the research suggests.
There has been a growing sense in corporate boardrooms that mergers once considered unthinkable now have a chance. The merger last year of Whirlpool Corp. and Maytag Corp., which united the top rivals in household appliances, was widely seen as a turning point. Administration officials have said merger-review standards haven't changed and the Justice Department remains vigilant.
"We are very disappointed by this decision and we intend to vigorously challenge the FTC in court," Whole Foods Chairman and Chief Executive John Mackey said in a statement. "The FTC has failed to recognize the robust competition in the supermarket industry, which has grown more intense as competitors increase their offerings of natural, organic and fresh products."
Wild Oats Chairman and Chief Executive Greg Mays said in a statement yesterday that his company "will cooperate with Whole Foods in all respects and to vigorously challenge the FTC in court."
Whole Foods and Wild Oats compete in metropolitan areas such as Los Angeles, Phoenix, Chicago, Miami, Las Vegas and St. Louis. About 72% of Wild Oats' sales comes from markets in which it overlaps with Whole Foods, a Wild Oats spokeswoman said.
In a statement last night announcing its intent to file suit to block the deal, the FTC said premium natural and organic supermarkets such as Whole Foods and Wild Oats, are different from conventional retail supermarkets. It cited "the breadth and quality of perishables -- produce, meats, fish, bakery items, and prepared foods -- and the wide array of natural and organic products and services and amenities" not found in traditional supermarkets. The agency also noted that premium natural supermarkets "seek a different customer than do traditional grocery stores."
Whole Foods said in March that FTC officials had raised concerns about "perceived anticompetitive effects" from the merger. In 4 p.m. composite trading yesterday on the Nasdaq Stock Market, shares of Whole Foods were down $1.21, or 2.9%, to $40.48, and shares of Wild Oats rose 25 cents, or 1.5%, to $17.16.
Whole Foods reported sales of $5.6 billion for the fiscal year ended Sept. 24, while Wild Oats had sales of $1.2 billion for the year ended Dec. 30. Based on J.P. Morgan Securities' estimate that the size of the natural-foods market last year was $46 billion, that would mean Whole Foods accounts for 12% of the segment and Wild Oats about 3%.
Whole Foods doesn't hold a significant share of food sales in any of the major U.S. food markets measured; its largest share last year was 5.5% of overall food sales in San Francisco. In contrast, Wal-Mart accounts for at least 10% of supermarket sales in 81 of the top 100 markets in the U.S., J.P. Morgan said.
Between them, Whole Foods and Wild Oats own a bit more than 300 stores in the U.S., Canada and the United Kingdom. By comparison, Kroger, the second-largest supermarket chain behind Wal-Mart, owns about 2,500 grocery stores in 31 states. Wal-Mart, with about 3,000 stores in the U.S. that sell groceries, held a 19% share of overall U.S. retail-food sales last year, according to J.P. Morgan Securities. The world's largest retailer doesn't disclose its natural-foods sales.
— James Covert, Corey Boles, Gary McWilliams and Mike Barris contributed to this article.
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Whole Foods Markets Inc. said costs associated with store openings hurt fiscal second-quarter profit, and U.S. regulators had requested additional information related to its planned acquisition of rival Wild Oats Markets Inc. in a $565 million deal.
"Although the [Federal Trade Commission] has not yet decided whether to challenge the Wild Oats transaction, members of the FTC staff have voiced concerns regarding perceived anticompetitive effects," the company said. Any further updates regarding the transaction will be made via public filings, Whole Foods said.
Whole Foods announced results after the close of regular trading. The Austin, Texas, company said net income fell 11% to $46 million, or 32 cents a share, in the quarter ended April 8, from $51.8 million, or 36 cents a share, in the year-ago period. Opening and relocation costs totaled $15.6 million, or seven cents a share, up from $7.3 million, or three cents a share, the year before.
Revenue rose 12% to $1.46 billion from $1.31 billion. Same-store sales, or sales at stores open at least one year, rose 6% in the period.
In 4 p.m. Nasdaq Stock Market composite trading, Whole Foods' shares rose 10 cents, or 0.2%, to $45.80. In after-hours trading, shares fell 8.7% to $41.80.
"We opened a record six new stores during the quarter, which brings us to 15 opened over the last 12 months, and we are still on track to open more stores this fiscal year than we ever have," Chief Executive John Mackey said.
The popularity of organic and natural foods, personalized service and ready-made meals has helped drive shoppers to Wild Oats and Whole Foods, but competition has come from several directions -- such as the expansion of the Trader Joe's chain, evolving product lineups at conventional supermarkets, and the efforts of discount giants Wal-Mart Stores Inc. and Costco Wholesale Corp. to expand market share in groceries.
Whole Foods said that for 2007, which it said is a 53-week year, it expects sales growth of 13% to 17% and same-store sales growth of 6% to 8%, on a 52-week to 52-week basis. It aims to reach $12 billion in sales in fiscal 2010.
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