FTC. v. Whole Foods Market, Inc. - Settlement Talks
In a series of recent stories on the U.S. Federal Trade Commission (FTC) v. Whole Foods Market, Inc. case, in which the FTC is attempting to break-up Whole Foods' 2007 friendly acquisition of then rival Wild Oats Market, Inc., we reported that based on our sources the current negotiations between Whole Foods and the FTC are proceeding well, and that the probability of the two parties reaching a settlement are looking good.
You can read those stories here: [Thursday, February 5, 2009: Retail Memo - Breaking: FTC Delays Whole Foods Merger Opposition Case Another 30-Days For Settlement Talks; Progress Towards A Deal Remains Positive.] [Tuesday, February 3, 2009: Retail Memo - Breaking Developments: FTC, Whole Foods Market, Inc. Progressing in Settlement Talks; Could the Negotiated End-Game Be Near?] [January 29, 2009: Retail Memo - Breaking: Whole Foods Makes Settlement Offer to FTC; FTC Halts Action For 5 Days; Natural~Specialty Foods Memo Calls For A Settlement.] Note in the January 29 piece, before full settlement talks began, Natural~Specialty Foods Memo (NSFM) called for both sides to work out a deal.
As we've reported, the FTC has halted all of its legal activity designed to overturn the Whole Foods-Wild oats merger until March 6, 2009, so that the two sides can continue their settlement talks and resolve the deal outside of court. The FTC has an Administrative trial set for April 6 which will result in a ruling by the federal regulator on the merger. Whole Foods is hoping to work out a deal with the FTC before the April 6 trial date.
John Mackey Speaks at Yale
Natural~Specialty Foods Memo (NSFM) recently found out from a reader that Whole Foods Market, Inc. co-founder and CEO John Mackey was giving two speeches or lectures at Yale University yesterday, Tuesday, February 10.
The topics of the lectures, which Mr. Mackey did give at Yale yesterday, were "Conscious Capitalism," in which he talks about the philosophy the principles of Whole Foods Market's business philosophy which he has gleaned from various thinkers, and "A Vision of Sustainable Agriculture and Healthy Eating in the 21st Century." Mr. Mackey has given speeches and lectures on the two topics at a number of other U.S. Universities, as well as to various groups.
Because we've been covering, reporting on, writing about and offering analysis on the FTC v. Whole Foods Market merger case and issue, and because Whole Foods' CEO John Mackey seldom ever disappoints when it comes to talking about hot button issues (like FTC v. Whole Foods) regarding Whole Foods Market when he does speak publicly, Natural~Specialty Foods Memo (NSFM) had a correspondent attend the two lectures and provide notes on what if anything CEO Mackey said about Whole Foods' current settlement negotiations with the FTC over the 2007 merger.
And John Mackey didn't disappoint.
At Yale University yesterday, Whole Foods' CEO Mackey told the lecture crowd that he is anticipating that there will be a settlement reached between the natural foods grocery chain and the FTC soon.
"Hopefully, there will be an announcement in the next couple of weeks," Mr. Mackey said. That's just about how long is left in the FTC's legal halt order, which expires on March 6.
Beyond that John Mackey didn't offer any details of the current settlement negotiations. He did say during a lecture that Whole Foods brought an initial offer to the FTC to get the ball rolling, which is something we've previously reported.
However, the fact that Mr. Mackey would offer such optimism about a settlement likely being reached in the next couple weeks suggests strongly to us he is rather confident that will be the case. If not, he wouldn't likely have even brought it up considering how serious and important the current negotiations are for the natural foods grocery chain. Would he?
In fact, John Mackey has taken a back seat in the entire FTC v. Whole Foods case since it began heating up again in late November of last year -- to the present. Instead he has let his top executives, Jim Sud and Walter Robb, be the Whole Foods' corporate faces and voices on the issue and legal case. Yesterday, during the Yale University lectures, was one of the few times the Whole Foods Market, Inc. CEO has said anything publicly about the issue in many months.
One of the reasons this is the case is because there is bad blood between a couple of the FTC Commissioners and Mackey over public statements he's made over the years about wanting to dominate U.S. natural foods retailing, as well as over the highly publicized news that came to light in 2007 that for at least a couple years prior as CEO of Whole Foods Market John Mackey had used the pseudonym "rahodeb" to post negative comments about Wild Oats Market, Inc. and its then CEO on Yahoo Finance message boards and other finance-related Internet chat boards. Mr. Mackey has explained that "rahodeb" was a variation of his wife's first name -- Deborah.
The nature of the posts "talked down" Wild Oats as a natural products retailer and included posts suggesting the company needed to be acquired by a superior natural foods retailer, that its stock was overvalued, and that it was headed for bankruptcy, among other things.
Mr. Mackey made such posts right up to the 2007 merger deal between Whole Foods and Wild Oats. After it was discovered that John Mackey was "rahodeb," the U.S. Securities and Exchange Commission (SEC) launched an investigation of the CEO's postings on the finance-related message board. The SEC found he had broken no laws and ended the investigation.
Below (in italics) are a couple of the "rahodeb" post he made on Yahoo Finance:
March 26, 2006: "OATS has lost their way and no longer has a sense of mission or even a well-thought-out theory of the business. They lack a viable business model that they can replicate. They are floundering around hoping to find a viable strategy that may stop their erosion. Problem is that they lack the time and the capital now.”
Another post John Mackey made on Yahoo Finance as "rahodeb": "Would Whole Foods buy OATS? Almost surely not at current prices…What would they gain? OATS locations are too small. Wild Oats’ management clearly doesn’t know what it is doing." The company, he wrote:, "Has no value and no future."
At least one of the FTC Commissioners appears to believe that Mr. Mackey skated on the "rahodeb" postings in which he "talked down" Wild Oats, which was being operated in a less than stellar manner and doing poorly. But since nobody reading the "rahodeb" posts knew at the time they were being made by the Whole Foods' CEO, it's hard to believe, despite the fact we think his doing so was a bit foolish, that the negative comments about Wild Oats had any material effect on the company. After all, for the comments to have any influence, investors and others would have to take seriously the postings of "rahodeb" on Yahoo Finance.
Its our analysis though that this incident, along with public comments John Mackey had made for many years about wanting to dominate natural foods retailing with Whole Foods, has influenced the hard line against the merger the FTC has taken. We have no proof of that but believe it to be the case based on our extensive reporting, research and analysis of the issue. Such comments though aren't legal grounds to influence the FTC, and we have no evidence that they have. It's our observation and analysis only.
John Mackey takes ownership of 'rahodeb' at Yale
During on of his Yale lectures yesterday, a audience member asked John Mackey if he thought his Internet posting as "rahodeb" has played any part in the FTC's aggressive, and expensive to Whole Foods Market, Inc., challenge of the Wild Oats' acquisition.
His answer: "No. Well, I don't know. You'd have to ask the FTC."
Sounds like he at least agrees with 50% of our analysis on the issue.
The Whole Foods' CEO then went on to further answer the question, telling the Yale graduate students, professors and others attending the lecture that he feels he didn't do anything wrong in making the Internet postings about Wild Oats. He commented that it was sort of like a "Warren Buffett opportunity" for him, likening the postings to the witty and insightful comments the billionaire investor and chairman of the Berkshire Hathaway holding company is famous for making each year in the company's annual report to stockholders. [You can read a selection of Warren Buffett's letters to Berkshire Hathaway shareholders at this link: Warren Buffett's Letters to Berkshire Shareholders.]
He then finished up discussing the topic by saying: "I'm actually proud of my postings on Yahoo."
However, he added, the episode taught him a lesson that as the CEO of a major, public company his doing such things could land him on the front page of newspapers. (He really didn't know this simple fact before the postings incident, we wonder?) "I suppose I've kind of grown up. I'm a man now," Mr. Mackey concluded.
Natural~Specialty Foods Memo NSFM) is on the record in the Blog as agreeing with the SEC's decision that John Mackey broke no laws regarding the "rahodeb" posts, as well as writing in a post in May 2008 that we believed the incident should be considered "water under the bridge" post the SEC's decision. A few readers, including a columnist for Conde Naste Portfolio (Felix) took us on a bit on that one. We stick to our original position on the issue and Mr. Mackey. [That post is at this link: Retail Memo: Whole Foods Market CEO John Mackey is 'Back to Blogging'; As Well as Being 'Back in Town.']
But -- did CEO John Mackey, who's been called "Wacky Mackey" at times in the press and elsewhere (a nickname we've always refrained from using and continue to do so accept in pointing out that others have used it), really need to share with the crowd at Yale that he is "proud" of the "rahodeb" Wild Oats' postings at the exact same time Whole Foods' legal counsel is engaged in settlement talks with the FTC. That same outside legal counsel (high-paid lawyers from three different top Washington, D.C. law firms) that, along with the high-priced Washington, D.C. lobbying firm, The Glover Park Group, retained by the company to defend it to Congress and the public against the FTC, is costing Whole Foods' stockholders tons of money at a time when the company's stock share value is at a 52-week low, having dropped in value by about 70% in the last year?
Or as another example, Whole Foods Market, Inc. acquired Wild Oats for $18.50 a share in the summer of 2007 (the $565 million acquisition). At the close of the market today, Whole Foods' stock was trading at $10.36 a share. You can view the details at Yahoo Finance here. We intend no "rahodeb" karma in suggesting readers view the Whole Foods Market, Inc. stock details at Yahoo Finance.
Speaking about interesting karma, in a few of his about 1,400 "rahodeb" Internet postings about Wild Oats Market, Inc. from 1999 -to- 2006, John Mackey wrote about how much Wild Oats' stock was dropping, saying it would fall below $5 a share at one point, as well as suggesting the stock could sink so low the company would have to file for bankruptcy.
We say this without any hubris or glee, but Whole Foods' stock share price only needs to drop by a little over half its current share price to hit that magic under $5 a share value.
And now that 24% of Whole Foods is owned by two investment groups, the private equity firm Leonard Green & Partners (17% stake), and Yuciapia Companies (7% stake), owned by longtime supermarket industry investor Ron Burkle, it's our analysis that if Whole Foods' share price starts dropping much more, it's likely that some type of merger or other similar move led by these two investor groups just might materialize.
Or perhaps Ron Burkle, who owned 18% of Wild Oats and helped engineer the 2007 deal with Whole Foods Market, Inc., might buy up another seven or so percent of Whole Foods, since the current share price is even less than it was when he bought his 7% stake not so many weeks ago.[Suggested reading: 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.] [January 16, 2009: Retail Memo - Exclusive: Supermarket Industry Investor Ron Burkle Looking For A Seat On Whole Foods Market's Board of Directors.]
God and Man, and John Mackey, at Yale
The famous Conservative thinker and writer, novelist, host for many years of the PBS public affairs program "Firing Line," master sailor and all around raconteur William F. Buckley Jr., who passed away last year, was a proud graduate of Yale College at Yale University back in the days when a guy could become successful with a mere bachelors degree. While at Yale, Buckley wrote his first book, "God and Man at Yale," (published in 1951), in which he chronicled his undergraduate years at the Ivy League institution of higher learning and set the tone for his long career as a conservative thinker and writer, as well as a polymath.
We wonder, if Whole Foods Market and the FTC fail to reach a settlement before the April 6 start of the FTC Administrative Trial on the merger, and if the conclusion of that trial results in the break-up of the combined Whole Foods-Wild Oats, if John Mackey's first book, published in his 55th (current age) or 56th year of life, might be titled: "God, Did I Have to Say Everything That Came to My Mind at Yale."? But then, there also is a certain charm about Mr. Mackey being himself, even in such times for the company.
Of course, time will tell. And the clock is ticking rather fast until the FTC legal halt ends on March 6. According to our sources, as of Monday afternoon (February 10), the Whole Foods-FTC merger case settlement talks were progressing well. But as always -- stay tuned.