Tuesday, December 9, 2008

Retail Memo: President-elect Obama's Choice to Head the FTC Could Influence its Decision to Procede in Overturning the Whole Foods-Wild Oats Merger

Whole Foods Market, Inc. and the U.S. Federal Trade Commission (FTC)

As nearly everyone in the world is aware, with the possible exclusion of those folks who live in caves -- and we even think many cave dwellers are aware of the fact, particularly those living in caves on the Pakistan-Afghanistan border region in south Asia -- the United States will have a new President take office on January 20, 2009, just a little over 40 days from now.

That new U.S. President, President-elect Barack Obama, a Democrat, will choose new heads of the various U.S. federal regulatory agencies -- like the Federal Trade Commission (FTC) which is attempting to overturn Whole Foods Market, Inc.'s friendly acquisition of Wild Oats Market, Inc., which we've been reporting on and writing about extensively for the last week -- that rule on corporate mergers and acquisitions

Now that President-elect Obama has made most of his top cabinet-level selections, the political and legal rumor mill is turning to who Mr. Obama will name to head these key federal regulatory agencies.

In terms of Whole Foods' lawsuit, which it filed against the FTC on Monday, December 8, as well as for the FTC's legal case to break up the merger, the stakes are high.

For example, a new head of the FTC who views the Whole Foods-Wild Oats merger differently, that is doesn't constitute what the current FTC says is a monopoly position in what it calls the "premium organic foods retailing retail segment," could possibly kill the entire administrative case if he or she can influence a majority of FTC members. The five-member FTC is bipartisan. No more than three members can be from any one party.

This is one reason why we have been reporting so extensively on Whole Foods legal and lobbying efforts, including its selection of politically-connected Democrat lawyer Lanny Davis to lead the natural foods chain's legal case and lobbying campaign against the FTC.

The political climate and changing of the leadership guard surrounding the FTC's case, which includes a new, incoming Democratic President and a strong Democratic Congressional majority, plays just as significant a part in FTC v. Whole Foods Market, Inc. (the FTC's legal case to overturn the merger) and in Whole Foods Market, Inc. v. FTC (the lawsuit filed against the agency by Whole Foods Market on Monday).

Lanny Davis and Whole Foods' Washington, D.C. lobbying firm, The Glover Park Group, which is stacked full of Democratic Party insiders, including numerous former Clinton Administration heavy hitters, is pulling out all the political stops in a companion strategy to the legal strategy, which is to try and get the FTC under the new, Obama-appointed Linkchairperson, whoever it may be, to kill the regulator's legal case against Whole Foods Market, Inc.

Part of pulling out all these political stops was today's press conference and lobbying effort on Capital Hill in Washington, D.C.

Additionally, Whole Foods and its outside public affairs consultants are organizing a grass roots style lobbying campaign in which as many 50,000 Whole Foods Market team members (store-level employees) from throughout the U.S. are contacting their local Senators and Members of Congress, asking them to oppose the FTC's legal case against the Whole Foods-Wild Oats merger, according to Whole Foods' co-president Walter Robb, who is heading up that effort from the company's executive team side.

In terms of the current speculation over who President-elect Obama might soon name to head the FTC, which along with the Department of Justice has jurisdiction over mergers and acquisitions and antitrust regulations, Cecile Kohrs, who writes for The Deal.com Blog, has an excellent piece on the topic, just published for the December 10 edition.

President-elect Obama's selection of a new FTC chair is the most important near-term decision the incoming President can make in terms of Whole Foods Market's future as a natural foods retailer.

Below is the piece from The Deal.com. The piece describes the major FTC members/players in the FTC-Whole Foods Market, Inc. case and how the decision inside the regulatory agency to go forward with the administrative case against the merger was made. Note particularly the FTC member names we have in bold, and the text we have in italics in the story. We thank The Deal.com for permission to run the piece.

Rumor Mill Percolates Over Obama's Expected Antitrust Picks
By Cecile Kohrs
The Deal.com - December 10, 2008

With Cabinet-level appointments nearly complete, antitrust lawyers expect President-elect Obama to soon choose who will run the agencies responsible for merger laws.

The names of potential candidates are swirling like the winter wind whipping through Washington. And despite the oft-repeated names of many obvious candidates, political insiders know dark horses often do very well in the wake of difficult campaigns. For instance, former Federal Trade Commission Chairwoman Janet Steiger, not an antitrust aficionada, was the spouse of a congressman who was tight with President George H.W. Bush. Anne Bingaman, who had some antitrust experience, was better known as the wife of Sen. Jeff Bingaman, D-N.M., before she was chosen to head the Department of Justice's antitrust division under Attorney General Janet Reno during the Clinton administration.

So, people handicapping the races for top antitrust jobs are wondering whether personal and family ties could lead to surprising names being put forth for antitrust enforcement. Already a number of Obama supporters with strong antitrust credentials are contenders for the top slots. The most commonly cited names for the antitrust division at DOJ are Harvard Law School professor Einer Elhauge and William Kolasky, a partner at Wilmer Cutler Pickering Hale and Dorr. John Harkrider, a name partner at Axinn, Veltrop & Harkrider, Janet McDavid of Hogan & Hartson and Jonathan Jacobson, a member of the Antitrust Modernization Commission and a partner at Wilson Sonsini Goodrich & Rosati, are also contenders.

For really wonky types thinking about more than just the top slots, contenders for deputy positions at the DOJ are believed to include Jones Day partner Leslie Overton, whose husband, George Washington University Law School professor Spencer Overton, is a friend of Obama's from their law school days. And M.J. Moltenbrey, head of Freshfields Bruckhaus Deringer's Washington office, held a senior staff post at the DOJ and is believed to have strong support for a deputy job.

As for running the FTC, William Baer, a leading partner in Arnold & Porter's well-known antitrust group, has both experience and the support of his mentor, former FTC Chairman Robert Pitofsky, who is advising the transition team. Christine Varney, a partner at Hogan, is also working with the transition team and as a former commissioner, will likely be considered for the chairmanship. Current Commissioner Jon Leibowitz's name is in the hat for chairman hopefuls as well.

Most antitrust practitioners recognize that naming regulators of banks and other financial institutions as well as policymakers for the overall economy are the primary focus of the new administration. But they hope the speed at which those positions are being picked will translate into rapid announcements on the antitrust front as well.

The American Bar Association has weighed in with a 64-page, 142-footnote transition report intended to inform transition officials about the issues at the heart of competition law today.
Over previous administrations it has been made clear that the individuals picked matter as much as the president's views on merger enforcement. Once the president nominates officials to head the agencies, those people drive enforcement priorities.

A key issue for antitrust experts has been the increasing difference between the Justice Department's antitrust division, where a sole decision maker responsible to the attorney general runs a pyramid management team with four key deputies, and the Federal Trade Commission, a five-member bipartisan team with no more than three members from any one political party serving seven-year, staggered terms. Whereas the DOJ's antitrust chief can set policy directly, it's rare for an FTC chairman to run the agency without occasionally compromising on issues.

In recent months, although Chairman William Kovacic has been the nominal head of the agency (FTC), it's less clear that he's charting the agency's path. The commission has been one member short of a full team since former Chairwoman Deborah Platt Majoras departed, and even before she left it became clear that Commissioner Thomas Rosch, a Republican, frequently sided with Democrat Leibowitz and Pamela Jones Harbour, an independent.

The agency's challenge to Whole Foods Market Inc. acquisition of Wild Oats Markets Inc. highlights the struggle. In the 1990s, Pitofsky issued a policy statement saying the agency would rarely pursue in-house merger challenges in the face of a district court judge's refusal to grant a preliminary injunction. If the appeals court upheld the district court, Pitofsky said, the agency would only rarely pursue a merger challenge. In the Whole Foods matter, however, the agency voted to pursue the appeal, and also, to keep the in-house trial active, though on hold.

As a result, when the FTC won the appeal in an unusual three-part opinion, the agency reconstituted its in-house trial, and ordered the matter to trial in February, a record pace aided by a new policy for in-house litigation.

Majoras had opposed prolonging the appeal, but was outvoted by the Rosch-Leibowitz-Harbour alliance. Since her departure, the matter is still under way.

The same coalition also bashed the DOJ for issuing a statement giving guidance to companies about when the government would not challenge a company that had a large market share for using its market power to its advantage. Kovacic issued a separate statement on the matter, neither endorsing the DOJ's perspective nor supporting his fellow commissioners.

Finding an antitrust expert willing to forge a consensus could be a challenge, especially when the position is contrasted with the DOJ's top job.

Eend of The Deal.com piece: Copyright ©2008 TDD, LLC. All rights reserved.]

Reader Resources

Recent, related posts from Natural~Specialty Foods Memo:

>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

Additionally, we've been writing about the FTC-Whole Foods Market, Inc. issue since last year. You can read a selection of those stories here and here.


Anonymous said...

I'm having a bit of a problem understanding John Mackey's logic. At least twice this year in public he said he would not do the Wild Oats deal if he had it to do over again. Yet he is spending what will amount to millions on all this legal talent and PR-Lobbying firms to fight the FTC case.

At this point in time it seems all the FTC could do if it wins is to force Whole Foods to divest X number of the former Wild Oats stores in those 20-some markets. So,why not cut a deal with the FTC to divest some of those stres and save all the cash and headaches? In this market there won't be much in the way of buyers anyway. The deal between WF and FTC could have a condition that WF must get at least a certain price for the stores. Most probably they could operate them for another year at least before even finding a buyer.

What I suspect is that the only good Wild Oats stores are in those 20-some markets, which is why Mackey is willing to spend millions to fight the FTC. But if WF loses they will be out millions in legal fees, ect. and still have to divest; and probably more stores than if they cut a deal.

I also think the FTC has taken Mackey on his word. For at least 15 years he has talked about dominating the NF retailing business. That's why WF bought so many smaller retailers in the 90's. Those of us who have been in the industry for years have heard such comments from Mackey and his top execs more than once.While I personally don't think WF holds a monopoly, I do think there is some karma in Mackey's words being used against him by the FTC in this case.

Anonymous said...

It's interesting the 3 FTC members in favor of breaking up the merger are a Democrat/Republican/Independent block. Tough for Whole Foods. But you are right, a new Obama-appointed chairman from outside the current FTC could shake things up. Also, it isn't unusual for FTC and other federal commission members to resign during an outgoing-incoming Presidential administration. But for Whole Foods to prevail going that route it would have to be one of those three commission members.