Tuesday, 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

Whole Foods Market, Inc. v. U.S. Federal Trade Commission

Whole Foods Market, Inc. CEO John Mackey lashed out sharply against the U.S. Federal Trade Commission (FTC) and its legal case against the Whole Foods-Wild Oats merger at a press conference in Washington, D.C. this morning, saying the FTC's pursuit of antitrust claims in the natural foods grocery chain's acquisition of Wild Oats Market, Inc. last year is "almost a vendetta" and is wasting time and money.

As we reported here, Whole Foods Market Inc. filed a lawsuit on Monday, December 8 against the FTC, claiming it has violated Whole Foods' due process rights in continuing its ongoing (since the summer of 2007) proceedings about the friendly deal.

In its lawsuit filed on Monday, Austin, Texas-based Whole Foods wants the federal court in Washington, D.C. to terminate an administrative case the FTC has begun, in which the agency is examining the grocer's $565 million purchase of rival Wild Oats Markets Inc. The regulator has scheduled an administrative trial for February 16, 2009, in which an administrative law judge will hear arguments from the FTC and Whole Foods regarding the merger, and make a ruling on the case. If it loses on February 16, Whole Foods Market, Inc. can appeal the ruling to a federal appeals court.

As we've previously reported, The FTC sought to temporarily block the acquisition in U.S. District Court for the District of Columbia last year, arguing that it would limit competition and could lead to higher prices. The court ruled against the FTC, and the two companies closed the deal in August 2007.

Since then, the FTC reopened its administrative case on the merger. Recently a federal appeals court gave the FTC the green light to go forward with its adminstrative case, which resulted in the agency setting the February 16, 2009 administrative trial.

At today's press conference, Whole Foods' CEO Mackey, who was joined by the retailer's co-president Walter Robb, outside legal council Lanny Davis and others, reiterated what we reported Whole Foods Market, Inc. is arguing in its lawsuit filed on Monday's with that same U.S. federal district court — that the FTC has prejudged the case and can't be expected to oversee an impartial proceeding. Mackey also reiterated the lawsuit argument that the FTC has violated Whole Foods' due process rights by setting a rapid schedule for the administrative trial that won't allow the company adequate time to prepare its defense.

The FTC's position

Natural~Specialty Foods Memo contacted the FTC today for its comments on the Whole Foods' lawsuit. However, a spokesperson for the agency told us it can't comment on the issue because it's engaged in a legal proceeding with Whole Foods Market, Inc.

However, the FTC spokesperson directed us to some written statements (which we've already reported on) on the case by acting director of the FTC's bureau of competition, David Wales.

Below is Wales', and the FTC's official statement on why it is pursuing its case against the Whole Foods' merger:

"We protect consumers, and if we feel a merger is going to hurt consumers and will be anti-competitive, we will pursue it aggressively and that is the case with Whole Foods," said David Wales, acting director of the bureau of competition at the FTC."

Wales also says the FTC stands by its antitrust claims vis-a-vis the Whole Foods-Wild Oats merger and says the system will determine the best result, meaning at the February 16, 2009 administrative trial.

In a statement, Whales said: "The FTC's system of review has been in place for nearly 100 years. And other business deals that were already complete have been undone. In the case of Chicago Bridge & Iron Co.'s purchase of Pitt-Des Moines Inc. in 2001, the FTC issued an order to split the business seven years after the two companies finished merging.

In its lawsuit Whole Foods Market, Inc. argues that since the merger is essentially completed, overturning it would do serious harm to the retailer, costing it millions of dollars to unwind the merger. Whole Foods says it has already spend about $16.5 million defending itself against the FTC.

At today's press conference, Whole Foods' CEO Mackey attacked the entire FTC case against the merger, saying: "The whole thing is ridiculous." We cannot get a fair trial in their (the FTC's administrative) court system."

In its lawsuit, Whole Foods is asking that the case be returned to the federal court for trial and resolution.

As we described in previous stories in the Blog, in the U.S. mergers, acquisitions and antitrust issues fall under the oversight of either the FTC or the Justice Department depending on various criteria. But each body follows slightly different processes.

The key difference is that the Justice Department simply asks for a permanent injunction, a one-step effort to stop the deal, in the cases where it determines laws or rules have been violated.

On the other hand, The FTC can seek a preliminary injunction, then an administrative proceeding that can be appealed to a circuit court if necessary, a process Whole Foods' attorneys and company leaders argue is unfair.

This is the processes the FTC has followed in its continued pursuit of its case against the Whole Foods-Wild Oats Merger.

In its lawsuit Whole Foods also is challenging this process, as well as challenging a proposed new FTC rule.

The FTC recently proposed a broad new rule with a short-circuited hearing schedule that would bypass federal courts.

"That proposal was strongly objected to by a former Chair and General Counsel of the FTC, as well as the U.S. Chamber of Commerce, and it is inconsistent with the recommendations of the Congressionally-mandated Antitrust Modernization Commission and an American Bar Association report that was recently submitted to the transition team of President-elect Barack Obama," Lanny Davis, the politically-connected Democrat and Washington, D.C. lawyer retained by Whole Foods as an outside counsel on the case, said today.

"The FTC is using Whole Foods Market as a 'crash-test dummy' and it is practicing a double standard. It is able to block mergers of companies under its jurisdiction, using a lower standard without going to federal court, when the Justice Department must go to federal court under a higher standard for companies under its jurisdiction," Whole Foods' legal counsel Lanny Davis said today. "That is inconsistent and unfair," Davis, who was a legal counsel to former President Bill Clinton and is a key advisor to Senator and soon to be Secretary of State Hillary Clinton, says. Senator Clinton and Lanny Davis attended law school together and have been close friends and political allies for decades.

Mr. Mackey (and team) hit 'The Hill'

As we write this story, Whole Foods' CEO John Mackey, co-president Walter Robb, legal counsel Lanny Davis and numerous Whole Foods Market store team members (employees) the retailer brought to Washington, D.C. from throughout the U.S. are finishing up a day of making the rounds of Congressional and Senate representatives' offices on Capital Hill, arguing for what the company is calling "Fair Play For Whole Foods by the FTC."

Of course those Senators and Members of Congress are rather busy on 'The Hill' at present. There's the financial crisis, the impending bailout of Detroit's 'Big Three' automakers and a few other legislative issues to tackle before both bodies recess for the Christmas holiday.

Whole Foods not alone on Capital Hill this week

And there also are numerous others making the rounds of Congress today.

They include organized labor, who in addition to lobbying heavily for the automakers bailout, also are lobbying aggressively for "The Employee Free Choice Act," which would change the way unions and workers can organize, and how workers can join unions.

The "card check" provision of the act, which is supported by a majority of Democrats in Congress and President-Elect Barack Obama, would allow workers to merely check "yes" on a card if they want to join a union at their non-union place of employment. This process would eliminate the current secret ballot process, which unions argue makes it difficult for workers to join unions.

One of the unions visiting Capital Hill this week has been the United Food & Commercial Workers (UFCW) union, the trade union for 1.3 million unionized supermarket and grocery store retail clerks in the U.S., Canada and Puerto Rico.

The UFCW, like all of organized labor, helped get President-elect Obama and numerous Democrats elected in November, and they are pushing hard for passage of "The Employee Free Choice Act" and its "card check" provision for next year.

One of the retail chains the UFCW wants to unionize is Whole Foods Market, Inc., which is one ofthe the largest non-union food retailing chains in the U.S. For example, Kroger Co, Safeway Stores, Inc. and Supervalu, the top three supermarket chains in the U.S., are union, as are most of the other leading big chains. Wal-Mart, Costco, Whole Foods, target, Trader Joe's and a few other national food retailers aren't.

The UFCW, which has been unsuccessful in organizing Whole Foods store employees for years, hopes the "card check" provision will make it much easier to do so, along with making it easier to unionize Wal-Mart and the other non-union chains.

We wonder if in making the rounds of Capital Hill today Whole Foods' CEO Mackey happened to cross paths with representatives of the UFCW, who are visiting most of the very same Senators and Members of Congress Whole Foods is attempting to rally the support of in its battle with the FTC, which argues, despite all empirical evidence to the contrary, that Whole Foods market, Inc. holds a monopoly position in 18-29 U.S. markets in what the regulator calls the "premium organic retailing segment.?"

We ask this question about running into the UFCW folks because we see unionization, which CEO Mackey is strongly against, as the next potential challenge for Whole Foods.

With a strong majority of Democrats in control in both the House and the Senate in January (the measure passed the House last year and was only a couple votes shy of passing the Senate, which now has the votes to pass the legislation), along with a Democratic President, all of which support "The Employee Free Choice Act" and "card check," the probability of the legislation passing next year is high. The question is, along with the FTC issue, how might Whole Foods handle an aggressive UFCW campaign to unionize its store employees in this new political climate?

But first, Mackey and company must deal with the FTC. The company is now doing so with all cylinders firing.

Reader Resources

Recent, related posts from Natural~Specialty Foods Memo:

>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.

1 comment:

Anonymous said...

As a Whole Foods stockholder, I strongly suggest the company let Walter Robb be the spokesperson on this issue rather than John Mackey. The reason is John is tainted on this entire merger issue. The posts under a fake name, ect. There also is talk the majority on the FTC who are pushing this issue plain don't like John and feel he should have been prosecuted over the Yahoo Chat Room business prior to the merger. I think having Robb out front on this is much better. Eventually a new page at Whole Foods is going to have to be turned anyway.