AUSTIN, Texas — Whole Foods Markets here would shutter at least 30 Wild Oats stores if it can complete the acquisition of its smaller rival, according to documents filed by the Federal Trade Commission in its antitrust case against the merger.
The FTC at first filed the documents in a manner that allowed some confidential information, including the plans for store closures, to be viewed, the reports said, before it refiled them with the confidential information blacked out. Some news organizations obtained the documents in their original state and published the information.
Whole Foods said it had launched an investigation into the release of the confidential portions of the filings, which were included as part of the FTC's “findings of fact” in the case — a summary of its argument against the merger. The FTC argues that the two chains compete in a niche of food retailing separate from traditional supermarkets, and that allowing Whole Foods and Wild Oats to merge would reduce competition in the niche and pave the way for Whole Foods to raise prices.
In a prepared statement, Whole Foods said it had not finalized its post-merger operating plans.
“Until the merger is complete, Whole Foods will not have sufficient information, including store-level financial statements, to make any final decisions regarding future operations,” the company said. “All information shared with the FTC was done with the reasonable understanding that it would be handled appropriately.”
A federal district judge was expected to issue a ruling on the FTC's request for a preliminary injunction blocking the merger by “mid-August,” Whole Foods previously had said. Last week Whole Foods extended its $18.50 per share tender offer for Wild Oats' shares until 5 p.m. today — the latest in several extensions Whole Foods has made. As of last Wednesday, Whole Foods said 69.4% of Wild Oats' shares had been tendered and not withdrawn.
If the deal does not go through, Wild Oats' board has approved a contingency plan encompassing its organization structure, leadership and strategic initiatives that would likely be presented to investors and the media in early September, a spokeswoman for the chain told SN. The two parties can walk away from the deal after Aug. 31 without penalty.
In addition to the plans for store closures, the FTC filing revealed other information that was supposed to be held confidential, such as the assertion that Whole Foods expected sales to increase 85%-90% at certain stores located near Wild Oats outlets that would be closed.
The documents also described how Whole Foods sought to keep Wal-Mart Stores from getting good deals by asking some suppliers not to sell directly to Wal-Mart.
Much of the FTC filing concerned analyses of Whole Foods' pricing in markets where it competes with Wild Oats, a review of the documents by SN shows. The FTC argued that Whole Foods generates higher margins on perishables in markets where it operates two stores than it does in markets where Whole Foods and Wild Oats each operate one store, reflecting Whole Foods' pricing power. The documents said Whole Foods generates margins that are 2.1% higher for produce, 1.9% higher for seafood and 1.8% higher for meat in markets where it does not compete with Wild Oats.
“The fact that margins are higher in produce, seafood and meat when the two stores in an area are jointly owned by Whole Foods is consistent with the more unique nature of Whole Foods and Wild Oats in these departments,” the FTC said. “In contrast, the effect for groceries — where the two sellers are less differentiated from others — is essentially zero.”
Also included was testimony from Perry Odak, the former chief executive officer of Wild Oats, who pointed out that Wild Oats had more pricing power in markets where it did not compete with Whole Foods.
Whole Foods and Wild Oats also “respond to competition from one another by improving product service and other aspects of product quality when they face nearby competition from each other,” the FTC said. “This non-price competition will be lost in the local markets in which Whole Foods would close Wild Oats stores.”
Other allegations in the FTC's filing included:
Traditional supermarkets do not present meaningful competition for Whole Foods and Wild Oats because of their need to appeal to a broader customer base and their reliance on CPG marketing funds.
Traditional supermarkets also would have difficulty launching a new natural/organic banner that could effectively compete because of sourcing, expertise and other issues.
The merger is not necessary to preserve Wild Oats as a viable company, as evidenced by its improving financial position.
The efficiencies that could be gained through a merger of Whole Foods and Wild Oats have not been made evident by the parties.