FTC. v. Whole Foods Market, Inc. - Settlement Negotiations
A source close to the settlement negotiations between the U.S. Federal Trade Commission (FTC) and Whole Foods Market, Inc. over the FTC's attempt to overturn Whole Foods' 2007 friendly $565 million acquisition of Wild Oats Market, Inc. on anti-trust grounds tells Natural~Specialty Foods Memo (NSFM) that the two parties are possibly getting close to an agreement that could end the legal battle over the merger.
As we reported in this January 29 story [Retail Memo - Breaking: Whole Foods Makes Settlement Offer to FTC; FTC Halts Action For 5 Days; Natural~Specialty Foods Memo Calls For A Settlement], Whole Foods Market, Inc. made a settlement offer to the FTC that if excepted by the regulator would end the near-18 month legal battle over the merger. In return, the FTC called a five day halt of action in its administrative process designed to overturn the deal.
That five day "cooling off period" ends on Thursday, February 5, just two days from today.
Here is what we've learned thus far: Our source tells us the FTC has reviewed Whole Foods' initial settlement offer but wasn't completely satisfied by what it contained. We are told one element of the offer involves a willingness on Whole Foods' part to sell a number of the former Wild Oats stores, now rebranded under the Whole Foods Market banner, in some of the 29 U.S. markets where the FTC says a combined Whole Foods-Wild Oats is a monopoly in what the regulator calls the "premium natural and organic retailing segment (PNOS).
After reviewing the Whole Foods' settlement offer, we're told the FTC sent the natural grocery chain's outside legal counsel back to company CEO John Mackey and his top executives, suggesting the grocer needs to sharpen its pencil a bit more regarding its settlement offer. We were unable thus far to find out if the FTC has made any specific suggestions to Whole Foods' lawyers regarding in what specific ways Whole Foods Market, Inc. needs to sharpen the settlement offer.
But it appears to be positive news that the FTC's first review of the offer is such that it wants to continue the negotiations. Although the five day FTC halt ends on Thursday, February 5, the regulator has the power if it desires to extend it if it believes negotiations are moving along in a positive direction.
Judge Friedman cancels upcoming hearings
In another development today that tends to reinforce what we're being told by our source -- that Whole Foods Market and the FTC could be near a settlement -- U.S. Federal Judge Paul Friedman has canceled a two day hearing he had previously scheduled on his court calendar for February 17-18, in which he had planned to hear arguments from the FTC and Whole Foods on a motion filed by the FTC, asking the judge to order the natural grocery chain to: (1) stop rebranding all remaining former Wild Oats stores to the Whole Foods banner, (2) have Whole Foods rebrand about 100 of the former Wild Oats stores its already rebranded to Whole Foods Market back to the Wild Oats name, and (3) put the operations of those about 100 stores in the hands of a third party entity, so that they would remain separate from Whole Foods Market, Inc.'s corporate ownership until the merger is resolved. [Read our January 25 story on the hearings here: Retail Memo: Judge Sets February Hearing Dates On FTC Motion That Could Result in Whole Foods Market Having to Rebrand 100 Former Wild Oats Units]
Judge Friedman's decision to cancel (not postpone) the February 17-18 hearings was the result of a joint request by the FTC and lawyers for Whole Foods Market, Inc. he said today in his announcement.
The fact that the FTC and Whole Foods jointly made this request of Judge Friedman, who has been hearing most aspects of FTC. v. Whole Foods Market, Inc. case since the regulator first opposed the deal in the summer of 2007 (and ruled in favor of Whole Foods before the FTC got that decision reversed by a federal appeals court), suggests to us strongly that the two parties are progressing in the settlement talks.
Additionally, although Judge Friedman offered no public explanation today about his decision to postpone the upcoming February 17-18 hearings other than to announce it, based on our close observation of the judge's behavior and his rulings in the case, we doubt he would have postponed the hearings had he not been given information from the FTC and Whole Foods Market that solid progress is being made in terms of negotiating a settlement of the merger case. Judge Friedman's canceling the hearings is a major indicator to us that a negotiated settlement could be forthcoming very soon.
Rumblings on Capital Hill & Whole Foods' D.C. team leader
Natural~Specialty Foods Memo (NSFM) also talked today to a Congressional staff member who works on a Congressional committee on Capital Hill in Washington, D.C. that deals regularly with the FTC. The senior staffer, who has been following our coverage in the Blog of FTC v. Whole Foods Market, Inc. since early December, 2008, said that although the merger case isn't a "hot button issue" at present on Capital Hill because of the "big hot button" issues of passing an economic stimulus package, solving the ongoing financial crisis, and the hearings on President Obama's various cabinet nominees, that there is a feeling among many members of the U.S. House and Senate that overturning the Whole Foods-Wild Oats merger has become far too significant of a priority for the FTC.
These members, Democrats and Republicans, have been lobbied on the issue by Whole Foods' Washington, D.C. lobbying firm, the Glover Park Group, which is connected heavily with Democrats on the Hill, as well as in some cases been talked to personally by Whole Foods Market's lead outside legal counsel on the case, former Clinton Administration special counsel Lanny Davis, who is a partner in the Washington, D.C. office of the Orrick Law Firm, where he specializes in the political aspects of legal issues like FTC. v. Whole Foods Market, Inc.
Lanny Davis is very well connected in Washington, D.C. political circles, most strongly with Democrats but also with many Republicans. Davis is sort of a "Political Zelig (Woody Allen's movie) or the political version of " Chance the Gardner" from the book and movie "Being There," in that he seems to have "been everywhere" and connected closely with powerful political figures throughout his life. Like 'Zelig" and "Chance," Lanny Davis appears to always be in the picture.
For example, Davis was a fraternity brother of former President George W. Bush when both were undergraduates many decades ago at Yale College at Yale University, where the two shared the same fraternity house. Later, as a law student at Yale Law School, Davis met and became best friends (to this day) with Hillary Rodham Clinton (then just Hillary Rodham). As a result of his close friendship with now Secretary of State Hillary Clinton, Davis became a close friend many decades ago of her husband, the former two-term President of the United States. (Perhaps there's something to that notion about making important connections at Ivy League schools after all?)
And it was to Lanny Davis that in the mid-to-late 1990's then President Clinton and former First Lady and now U.S. Secretary of State Hillary Clinton turned to as White House Special Counsel when they were neck-deep in a series of White House legal messes and scandals that to this day can be identified by single words -- "Whitewater," "Travelgate," "Troopergate" (brought back from the dead from when President Clinton was Governor of Arkansas), "Monica" and eventually the biggest Kuhuna of all: "Impeachment."
The Clintons' survived these legal scandals, including in the case of President Clinton not being impeached, with the help of Lanny Davis.
President Clinton has since gone on to be a widely respected and very popular former President, both at home and internationally, and former First Lady Hillary Clinton nearly won her party's nomination for President and is now President Obama's chief foreign policy voice as Secretary of State. Whole Foods Market, Inc. hired Lanny Davis to head up its legal and lobbying team in hopes that he can work some of that same magic in the case of FTC v. Whole Foods Market, Inc.
Davis also played a key role in Hillary Clinton's run for the Democratic party nomination for President. And as soon as she dropped out of the race and supported President Barack Obama, it was Lanny Davis who fast became the most vocal advocate in private to the Obama camp and in public on the cable news programs, for then Senator Clinton's being the Vice Presidential nominee. And when President Obama named then Senator from Delaware Joe Biden as his Vice Presidential nominee rather than Senator Clinton, it was Lanny Davis who behind the scenes and publicly started advocating Hillary Clinton for Secretary of State, a post she was officially sworn into today by Vice President Joe Biden.
The Congressional senior staffer told us today numerous members of Congress have made their feelings known to the FTC in one way or another that they would like to see a settlement of the merger rather than seeing it drag on and go to trial. The FTC has an administrative trial set on the merger for April 6, 2009. Of course, nobody will publicly confirm such messages being sent because of the potential political land mines associated with saying so in public. We should add that we have no information or evidence that any messages sent by members of Congress are or might influence FTC Commissioners, who once appointed hold their positions for a set term.
What we do feel confident in reporting is, based on our sources, it appears that progress is being made in the settlement talks between the FTC and Whole Foods Market, Inc. We asked our key source today (the one initially sighted in the lead paragraph of the story) to handicap the odds of the FTC and Whole Foods Market, Inc. reaching a settlement by Thursday, February 5, when the five day FTC halt ends. He initially said that was impossible for him to do. However with some gentle encouragement (we explained since he was talking to us on the condition we wouldn't print his name it was fine to handicap it) he gave it a 60%-40% as of this afternoon in favor of the two parties reaching a settlement by Thursday.
Of course there's no way to determine right now if those 60-40 odds are indeed real. But whether its a 60%-40% or a 50%-50% proposition (or even if there's a mere 10% chance of settlement), the state of negotiations between the FTC and Whole Foods is 100% beyond where it was just one week ago when there were no negotiations going on, and for that matter far beyond what the promise of a negotiated settlement has been since the FTC first opposed the merger in the summer of 2007.
In our analysis, a settlement, and thus the negotiated end-game to the long-running case of FTC v. Whole Foods Market, Inc., could well be near. Stay tuned.