A federal appeals court yesterday reversed a decision by a lower court that allowed Whole Foods to acquire Wild Oats last year.
A three-judge panel of the U.S. Court of Appeals ruled by a 2-1 margin that U.S. District Judge Paul Friedman should have taken more time to consider claims made by the Federal Trade Commission (FTC) that the deal between the two natural food grocery chains violated antitrust statutes and would ultimately harm consumers.
In the case argued before Judge Friedman, the FTC contended that Whole Foods and Wild Oats represented a separate class of trade apart from mainstream grocery stores and a merger would put them in a dominant position to other natural and organic food retailers. Whole Foods argued that it faced competition from more than just natural food stores and that its deal with Wild Oats needed to be viewed in that wider context. Ultimately, Judge Friedman ruled in favor of the deal.
With the Appeals Court decision, the case goes back to the District Court and Judge Friedman.
"The court of appeals' decision provides a roadmap for Judge Friedman to once again deny the FTC's request for a preliminary injunction,' Libba Letton said in an emailed statement to the Bloomberg news service. "We await the U.S. District Court's response so this issue can be resolved. Meanwhile, it is business as usual."
Jeffrey Schmidt, director of the FTC's Bureau of Competition, issued a statement, as well. "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," he wrote.
While it is unlikely that the merger would be overturned, it is possible that further review of the case could lead the court to conclude that some assets of the combined companies should be sold off in markets where competition is seen as weak.
"It's difficult to unscramble the egg, but there are other various remedies," Jane Willis, an antitrust lawyer with Ropes & Gray, told Bloomberg. "If Whole Foods does not want to continue paying high litigation fees, they might even go to the FTC and propose a divestiture plan."
Whole Foods, which currently operates 270 stores, acquired 110 locations from Wild Oats. It has sold 35 of the stores it purchased and closed another dozen locations. Roughly one-third of the Wild Oats stores have been converted to the Whole Foods banner, according to an Associated Press report.
Discussion Questions: What do you see happening now that the Whole Foods/Wild Oats merger case is being sent back to district court? Is there evidence well into the merger process that the FTC may have been right in the case it argued or has a year proven that the agency had it wrong?