FTC v. Whole Foods Market - Whole Foods Market v. FTC
The U.S. District Judge, Paul Friedman, who previously ruled in favor of Whole Foods Market, Inc.'s friendly acquisition of Wild Oats Market, Inc. last year, today directed the U.S. Federal Trade Commission (FTC) to detail in writing how Whole Foods could stop its essentially completed merger with Wild Oats, including offering ways it could take apart the merged chains if a ruling were to overturn the 2007 deal. In legal terms Judge Friedman is asking the FTC to detail the proposed remedy were a ruling to go in its favor.
This is a partial win for Whole Foods in its battle with the FTC because it's the first time the U.S. Federal Court has stepped into the matter since the natural foods grocery chain filed its lawsuit against the FTC two weeks ago. The FTC's having to reveal a proposed remedy in writing also will allow Whole Foods Market, Inc. to see what the regulator has in mind for the combined Whole Foods-Wild Oats combined company should it win in court.
But the judge's order to the FTC also is a partial win for the FTC because the federal judge hearing the case signaled he is open to a close re-examination of his previously ruling on the deal; a ruling that was in favor of Whole Foods.
At a "status hearing" today (the first on the matter) on the FTC v. Whole Foods Market, Inc. case, Judge Friedman also said he will make a determination as to weather the acquisition is anti-competitive, which is something Whole Foods Market, Inc. is asking the U.S. Federal Court to do.
Judge Friedman's previous decision that the acqusition-merger is not anti-competitive -- the legal decision which prompted Whole Foods to go forward with integrating the Wild Oats stores into its operations -- was overturned by a three-judge federal appeals court panel, which then sent the case back to the judge for another examination.
At today's hearing, the first hearing since the appeals court's ruling in favor of the FTC, Judge Friedman said his desire is for Whole Foods Market, Inc. and the FTC to come to a "possible agreement to keep things frozen in place or semi-frozen in place while I tee up the remand proceeding." In other words, he wants nothing to change until he makes a ruling once again on the acquisition-merger, and determines if it is or isn't anti-competitive.
This suggestion by the judge poses a conflict for the FTC (and thus Whole Foods as well) because it plans to hold an administrative trial before an FTC-named Administrative Law Judge in February, 2009, as we've reported, in which that judge will offer a ruling on whether or not the acquisition-merger should be overturned.
Judge Friedman was clear in his words today that he wants nothing to occur until he makes a legal decision on the case. He could make such a decision before or after February of next year.
Judge Friedman's instruction to the FTC at today's hearing to provide a roadmap of how Whole Foods could take apart the now essentially completed merger was influenced strongly by arguments made by one of the lawyers from Whole Foods Market, Inc.'s outside law firms, antitrust attorney Paul Denis.
Denis, who is with Dechert LLP., one of the three Washington, D.C.-based law firms representing Whole Foods in the case, argued at the hearing today that Whole Foods and Wild Oats stores "already operate as one unit." "We have one human resources system...We have one purchasing system," he told Judge Friedman. Denis is a partner with Dechert LLP.
In an interesting development following Denis' remarks at the hearing, FTC attorney Matthew Reilly said it would be difficult, but not impossible, for Whole Foods to stop the integration with Wild Oats that has been occurring for the past 16 months. He told the judge 19 Wild Oats stores have closed since the merger. Another 70 Wild Oats stores are in the process of "rebranding" to operate under the Whole Foods banner.
He left out the near-40 Henry's and Sun Harvest banner stores Whole Foods Market, Inc. sold off to Smart & Final, Inc, shortly after the deal was done last year. Additionally, most of the 70 Wild oats banner stores mentioned are either already rebranded or almost so, including some that have been remodeled or are in the process of being remodeled.
Judge Friedman agreed on both the difficulty but the not impossible nature of Whole Foods' taking apart the merged companies saying in response to the FTC lawyer's remarks that "a higher court wouldn't have sent the case back to me if they thought nothing could be done (in terms of stopping the integration)."
Therefore the judge instructed the FTC to provide him with a written, detailed overview of how it believes Whole Foods Market, Inc. could achieve a break up at this point in time.
This is positive news for the FTC in that the judge is saying there was cause for the federal appeals court to return the anti-competitive case back to his court, and in asking for the new information from the agency he is signaling that he's not closing the door on further analysis of the deal post-appeals court, despite earlier ruling in Whole Foods' favor. As we mentioned earlier, it also will give Whole Foods a look at what the FTC plans regarding a break up, which is something the natural grocer has no idea of at present.
The FTC has argued for the last 16 months that a combined Whole Foods-Wild Oats presents a anti-competitive monopoly in what it calls the "premium natural and organic retailing segment" in numerous U.S. Markets. Whole Foods says this is false -- that a combined Whole Foods-Wild Oats actually offers a benefit to consumers, and that the natural foods chain has more than enough competition in all U.S. markets.
Whole Foods' lawyer Paul Denis told Judge Friedman at the hearing today that the FTC has failed to take into account the evolution of the natural and organic foods retailing industry in which there are numerous retailers of all formats selling the category products today, suggesting to the judge he should take this into account, including the increased number of players that have come on the scene in the 16 months since the friendly acquisition of Wild Oats by Whole Foods was completed.
As Natural~Specialty Foods Memo readers are aware (and others can read about in our past posts linked at the end of this piece), we have been arguing since last summer that the FTC's argument that a combined Whole Foods-Wild Oats presents a monopoly is unfounded for two primary reasons.
First, that its definition of the "premium natural and organic retailing segment" (which is the central basis or fulcrum of its entire anti-competitive argument) is irrelavent today because natural and organic products retailing in the U.S. today (and last summer as well) is a multi-format, competitive industry in which consumers no longer need rely on a single retailer like Whole Foods for a complete selection of category products.
Extensive selections of fresh and shelf-stable natural and organic foods can be purchased today at supermarkets -- stores owned by Safeway Stores, Inc., Kroger Co. and Supervalu, Inc., for example (all three of these big national chains even have their own store brands of organics); at scores of regional chains (think Publix in the south, Wegmans in the east, Raley's in the west for just three major examples) and at hundreds of independents; at major mass merchandisers such as Wal-Mart, Target, Costco, BJ's Wholesale Club and others; at specialty chains like Trader Joe's and others; as well as at fast-growing natural foods chains like Sunflower Farmers Market, Sprouts Farmers Markets, Earth Fare and many others across the country, including hundreds more independent and co-op natural foods markets.
Additionally, we've argued that demonstrative evidence in the form of Whole Foods Market, Inc.'s performance over the last 16 months since it acquired Wild Oats shows anything but a monopolistic natural foods chain in action.
>Whole Foods net income was off by a whopping 40% in its last quarter.
>Whole Foods stock share value is off by 70% from its high following the Wild Oats acquisition.
>Whole Foods fired over 100 headquarters employees a few months ago because of its dramatic drop in income and sinking value as a company.
>Whole Foods has cut in half its growth plans for fiscal year 2009, reducing by more than half from about 35 to about 15 the number of new stores it had previously planned to open, along with cutting back on store remodeling programs.
>Whole Foods had instituted an across the board, at its headquarters and in its stores, cost-cutting program, instructing employees to better rationalize all expenses in what are tough times for the natural grocery chain.
>Whole Foods just sold 17% of the company in order to raise $465 million, which is needs not only to help pay off the about $150 million in debt it acquired as part of the Wild Oats merger, but also needs for funding its basic operations expenses, as well as to fund its scaled-down growth plan for fiscal 2009.
If it walks tall like a "natural and organic premium retailing segment" duck and talks loudly like a "premium natural and organic retailing segment" duck -- then it is one. But Whole Foods Market, Inc. neither looks like a category retailing monopolist based on its performance over the last 16 months nor is it walking and talking like one. The fact is it's far from it on all counts.
In fact, the FTC is about the only entity, or person, that thinks Whole Foods Market, Inc. presently holds a monopolist position of any kind in any market. Those in the natural and organics product industry, including most of Whole Foods' retail competitors and its suppliers, currently are viewing the natural foods chain as a struggling retailer, wondering what it will do next to improve its performance.
At the hearing today Judge Friedman also commented on Whole Foods' lawsuit against the FTC, in which the natural grocer asks the federal court to dismiss the regulator's administrative case against it and rule once and for all on the Wild Oats' acquisition. The lawsuit is before Judge Friedman.
In countering, the FTC has asked the Judge Friedman to dismiss Whole Foods' lawsuit against its case.
Judge Friedman said today he would rule on the government's (FTC) dismissal motion of Whole Foods Market, Inc.'s lawsuit before he takes up whether Whole Foods' purchase of Wild Oats was anti-competitive.
This means we will first see a ruling on the lawsuit from the judge before he begins hearing the FTC v. Whole Foods case (the overall case against the deal) that was returned to him by the federal appeals court.
FTC v. Whole Foods Market - Whole Foods Market v. FTC: Recent coverage and analysis in Natural~Specialty Foods Memo:
December 18, 2008: Retail Memo: 'This Isn't Over Yet' - New Seasons Market CEO On Judge's Decision the Natural Gorcer Must Turn Over Trade Secrets to Whole Foods Market December 18, 2008: Retail Memo: The 'Whole Primary Source Scoop' -- FTC and U.S. Federal Court Documents on the FTC v. Whole Foods Market, Inc. Case....December 17, 2008: Breaking News: Judge Orders New Seasons Market to Comply With Whole Foods' Subpoena and Submit Sales Data, Financial Records and Other Trade Secrets....
December 16, 2008: Retail Memo: Whole Foods, Wild Oats and Boulder, CO...And the Rocky Mountain News' Editorial Take On FTC v. Whole Foods Market, Inc....December, 15, 2008: Retail Memo: Eight Members of U.S. Senate Judiciary Committee Send Letter to FTC Chairman Regarding FTC's Legal Case Against Wild Oats' Acquisition.... December, 13, 2008: Retail Memo - Analysis & Commentary: More On FTC v. Whole Foods Market, Inc. and Whole Foods Market, Inc. v. FTC....
December 9, 2008: Organics Category Memo: Wither Organics? Organic Food & Grocery Category Sales Down; But Double-Digit Growth Still Likley With Mass Market Lift....December 9, 2008: Retail Memo: Whole Foods Markets' 'Whole Legal Paycheck:' Three Top Washington, D.C. Law Firms Teaming Up On The Natural Grocery Chain's FTC Lawsuit....December 9, 2008: Retail Memo: Whole Foods Market CEO John Mackey and Team Launch First Aggressive Attack Against the FTC's Legal Case at Press Conference This Morning....December 8, 2008: Retail Memo: Mr. Mackey (and the Whole Foods Market Troops) Goes to Washington....
December 8, 2008: Retail Memo: Breaking News - Whole Foods Market, Inc. Files Lawsuit Against the FTC; Argues the Regulator Violated the Company's Due Process Rights....December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter and Whole Foods Market Co-President Walter Robb Discuss and Debate the Subpoena Issue Online....December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter Speaks Out Again Today on the Whole Foods Market, Inc. Subpoena of His Company's Data....December 7, 2008:
Retail Memo: Whole Foods Market Retains Top Washington D.C. lawyers and Politically-Connected Lobbyists to Plead its Case Against the FTC....December 6, 2008: Retail Memo: Fast-Growing and Scrappy Sunflower Farmers Market Ventures Deep in the Heart of (Whole Foods Country) Texas....December 6, 2008: Retail Memo: Fast-Growing NF Chain Sunflower Farmers Market Responds to Whole Foods Market, Inc. Subpoena For Sales, Financial and Related Information....
December 3, 2008: Retail Memo: More on the Whole Foods Market-New Seasons Market Subpoena Issue; FTC Holding Firm For February, 2009 Hearing....December 2, 2008: Retail Memo: Whole Foods Market, Inc. Closes $425 Sale of Stock to Private Equity Firm; Adds Members of the Firm to its Board of Directors....December 2, 2008: Retail Memo: Portland, Oregon-Based New Seasons Market CEO Brian Rohter Responds to Whole Foods Market's Paige Brady....
December 2, 2008: Retail Memo: Whole Foods' Paige Brady Responds to Yesterday's New Seasons Market Piece; Lots of E-Mails; Issue Heats Up On the New Seasons Market Blog....December 1, 2008: Retail Memo: Whole Foods Wants A Court-Mandated Financial Records Dump from Portland-based New Seasons Market; it Says For its Battle Against the FTC.
FTC v. Whole Foods: Linkage from the Natural~Specialty Foods Memo archives:
Click here, here and here for stories about the FTC-Whole Foods issue from our archives, including pieces about mass market and natural foods class of trade retail competitors.