WASHINGTON — Whole Foods Market last week pleaded with competitors for their help in defending its marriage to Wild Oats Markets from federal antitrust regulators determined to break it up.
The Federal Trade Commission asked a judge last week to unravel the combination of Whole Foods and Wild Oats, including rebranding of stores to their former banner and the appointment of a new management team to lead the company as a separate retailer while the legal disputes over the merger are resolved.
The actions were the latest in a battle between the FTC and Whole Foods that has kept the 2007 merger in legal limbo for more than 18 months. Whole Foods reiterated last week that it has long since completed the integration of the two companies, with only four former Wild Oats stores yet to change signs due to local ordinances. All of the other 135 stores in the initial deal have been converted to the Whole Foods brand, shuttered or sold, officials said.
The sides are preparing for an administrative hearing, set to begin April 6, to decide the legality of the merger. As part of its preparation, Whole Foods confirmed that it has subpoenaed 93 food retailers in 29 markets across the country to supply its lawyers with documents that would help Whole Foods establish that “we actually or potentially compete with other supermarkets for customers,” according to a letter sent to those companies last week by John Mackey, Whole Foods' chairman and chief executive officer.
Whole Foods contends that establishing conventional supermarkets and other retailers that sell food as competitors to Whole Foods is key to its defense in the case, since the FTC has sued to block the merger by defining the competitive set of Whole Foods and Wild Oats as “premium natural and organic retailers” — a considerably more select group.
The retailer last week sought to assure those retailers that the information they provide will be seen only by Whole Foods' outside attorneys, and not by Mackey or other employees of Whole Foods. Mackey last week also asked that the FTC pledge not to make any information provided by the retailers public.
Some stores, including Portland, Ore.-based natural foods retailer New Seasons Markets, had previously indicated they would not comply with the request for fear that confidential information would wind up with a competitor. Whole Foods officials last week called that sentiment and the media coverage of that story a “misimpression” that hurt its performance in Portland.
“We wish we didn't have to ask for these documents,” Mackey wrote. “But we have no choice if we are to defend ourselves.”
Mackey also appealed to his fellow retailers to stand up to what he perceived as FTC bullying.
“I must say that if the FTC can act this way regarding [Whole Foods], it is possible that someday in the future your company similarly may be victimized,” he said. “In this respect, all of us in today's economic environment share a common interest in challenging regulatory behavior that ignores the realities and challenges of the marketplace.”
Whole Foods could resort to legal means to enforce the subpoena, officials noted in a press conference last week. They declined to say which retailers have been subpoenaed.
The retailer in the meantime denounced the FTC's request to “unscramble the eggs” of the merger while the legal proceedings continue. In court papers filed last week, regulators detailed the remedies the agency would seek to ensure that any relief it would receive would be effective, as requested last month by the District Court judge, Paul Friedman.
Its requests include rebranding as Wild Oats all stores that were under the Wild Oats banner at the time of the acquisition; and the appointment of a trustee to oversee the acquired Wild Oats assets, who would be authorized to establish a separate management team to run the company until the trial is completed.
The trustee would have “authority to make decisions regarding pricing, capital investment, personnel, distribution, information technology, and any other measures reasonably necessary to preserve the Wild Oats assets and to enable the Commission, if necessary, to reestablish the pre-merger status quo,” Matthew J. Reilly, assistant director of the FTC's bureau of competition, said in a letter to Whole Foods' attorneys last week.
In a press conference last week, Whole Foods officials were asked whether they felt the lack of cooperation from other retailers indicated they agreed with the FTC's case and wished to drive Whole Foods out of business.
“We never question people's motives,” Lanny Davis, an attorney for Whole Foods, said. “We assume the Federal Trade Commission is, and all the commissioners are, acting in good faith. They sincerely believe the merger is anticompetitive. We do not speculate about agendas and conspiracy theories. We're interested in facts.”
