Judge Won’t Get in Way of Whole Foods/Wild Oats Deal
U.S. District Judge Paul Friedman has rejected the Federal Trade Commission’s (FTC) request to temporarily block a deal by Whole Foods Market to acquire its smaller rival Wild Oats Markets.
With the ruling, the two companies can proceed with the $565 million deal. The FTC has the option of appealing Judge Friedman’s ruling or seeking to bring its case against the merger to full trial. Short of further legal action to delay the acquisition, Whole Foods and Wild Oats will be free to conclude the deal after noon EST on August 20. Both companies have the right to terminate the deal if it is not concluded by August 31.
Andrew Klevorn, a partner at Eimer Stahl Klevorn & Solberg, told Bloomberg News that the ruling reflects the reality that “consumers look at Whole Foods as just one of many choices in the grocery segment.’
The CEOs of Whole Foods and Wild Oats expressed their approval of the judge’s ruling in a joint release.
John Mackey, chairman, CEO, and co-founder of Whole Foods Market, said, “The District Court’s ruling affirms our belief that a merger between Whole Foods and Wild Oats is a winning scenario for all stakeholders.”
Gregory Mays, chairman and CEO of Wild Oats, said the deal “will mean significant career opportunities for our store associates, capital investment in our stores to enhance the shopping experience for our customers, and value-creation for our shareholders.”
Whole Foods plans to sell 35 Henry’s and Sun Harvest store locations and a distribution facility in Riverside, Calif. to a subsidiary of Smart & Final once the deal is completed. Other documents leaked earlier in the week suggest that Whole Foods plans to sell off at least 30 Wild Oats stores. The company has not confirmed it plans to do this.
Discussion Question: What’s next for Whole Foods and Wild Oats now that the companies have apparently overcome the FTC’s legal challenge to the planned merger of the companies? Do you see the combined companies being a much more formidable competitor together than they were separately?
Whole Foods will probably do the typical acquisition steps: 1) get rid of non-profitable stores; 2) eliminate duplication from areas like accounting, HR, marketing/merchandising and logistics; and 3) consolidate buying and logistics infrastructures. Hopefully, they will perform these acts in a much more intelligent manner than others.
Wild Oats was building a good brand and merchandising well–some may argue, better than Whole Foods. Keeping the good ideas and people while avoiding throwing the good out with the bad will be a strategic challenge that many others have failed to execute.
Whole Foods will need to broaden its footprint across the U.S. and strategically build the brand. There is also an opportunity on the internet for areas that are not close to stores. Healthy living is in vogue and is definitely a store to watch.
Thankfully someone has put a stop to this nonsense. The FTC has no shortage of opportunities to work. If they started enforcing the laws that are on the books now (Robinson Patman, Sherman Antitrust, etc.) they could stay busy “protecting the public” for the next 100 years. The fact is they don’t appear to be interested in the old stuff, just something to make headlines and try an convince the uneducated public that they are actually doing something. Judges get kicked around a lot these days and most of them deserve it, but in this case our judicial system worked.
It simply means more stores. It certainly won’t make Whole Foods any better, and the distraction of integration may well dampen short-term performance. In the long run, a bigger Whole Foods may well be a more efficient Whole Foods though. And the similarities in the business approach will probably make this integration easier than most. A good analogy on the supplier side would be the General Mills/Pillsbury integration a few years ago. It took the Mills three years to really right the ship after that one–but they are singing now.
Make no mistake, Whole Foods will have a tremendously positive impact on Wild Oats–if for no other reason than changing the name to Whole Foods.
If you’ve ever shopped for any period of time at both retailers, you’d know that the difference in service, quality and price (three cornerstones of retail) is vastly different–and I certainly don’t have to comment on who’s superior. One visit to Whole Foods will kill any positive brand impression of Wild Oats you may have had forever.
Clearly, the impact of excellent retail execution will increase revenue for Whole Foods as an entity…and bigger than that, it’s a huge win for the customer.
What’s in store for the future? It depends upon the plan Whole Foods has in mind and how well they are able to manage the culture change. With more stores, including a section of organic products, Whole Foods no longer has the corner on the organic or healthy market. However, they do what they do very well. One option is for them to convert Wild Oats stores to the Whole Food approach, another option is to incorporate some of the Wild Oats approach with the Whole Foods approach, another option is to use their size to create a new format, another approach is to have Whole Food stores and a new format.
Depending upon how management of Whole Foods sees the health food, organic, nutraceutical market going, Whole Foods has a number of options open to them.
My original comment on this case in early June pointed out the disconnects in the FTC’s argument. (Again, full disclosure: My brother is an FTC staff member.) The judge apparently agreed with many of us who commented that there is a lot of market share in “natural foods” being taken by traditional grocers as well as by discount supercenters. The merger of Whole Foods and Wild Oats hardly makes this arena less competitive; in fact, it points out the growth opportunity in the category for other food retailers to pursue.
How the merger of the two companies unfolds is another story. Since the original FTC objections, there’s been plenty of negative press about confidential strategic plans, Yahoo message boards, and so on. Whole Foods may be able to tackle the logistical challenges of absorbing Wild Oats’ systems, real estate portfolio, and so on. The bigger challenge will be to make the cultural transition work after Whole Foods has pursued its prize so aggressively.
Ron Burkle has proved once again that there’s more money to be made buying and selling supermarkets than operating them. His purchase and sale of Wild Oats is another step in the inevitable consolidation of the retailing business. Wild Oats was an also-ran to Whole Foods’ market leadership. Financially speaking, would the retailing industry be a lot better off if the also-rans in multiple categories (electronics, apparel, shoes, off-price, dollar, etc.) were merged out of existence sooner rather than later?
Usually when those plain vanilla grocers like Safeway or Albertsons have taken over another grocer, they have destroyed them in short order because usually it’s inferior grocers buying better companies. Whole Foods taking over Wild Oats might be different because Whole Foods is the superior operator. I am amazed at all the time and money wasted over all this FTC nonsense.
It’s hard to say. It’s much easier to blend companies than it is to blend cultures. I’ve done enough post-merger integration work to know that “marrying” two powerhouses doesn’t necessarily create an even bigger powerhouse. In fact, sometimes exactly the opposite is true. The finances and the legalities may well prove to be the easiest part of the deal.
This is a combination that is non-restrictive and does not truly require any federal intervention since it does not seek to restrain trade or act in a monopolistic way. The best part of this combination is that it gives both of these players the chance to combine their strengths and move towards developing a greater base to compete with the larger players in the market including Safeway, Supervalu/Albertsons, Kroger, etc.