Using Pseudonym, Whole Foods CEO Bashes Wild Oats

MARK HAMSTRA

AUSTIN, Texas — John Mackey, chairman and chief executive officer of Whole Foods Market here, continued to cement his reputation as one of the more eccentric business leaders in the country with the revelation last week that he spent several years pumping his own company's stock in a frequent series of online message-board postings using a pseudonym.

Beginning in 1999 and continuing through August of last year, Mackey engaged in near-daily online discussions and arguments on the Yahoo! stock message board for Whole Foods, the fast-growing company he founded in 1980. The posts came to light in a court filing last week by the Federal Trade Commission as part of its case seeking to block Whole Foods' acquisition of Wild Oats Market, Boulder, Colo.

The FTC cited a March 2006 post on the message board from March of last year in which Mackey, using the pseudonym “rahodeb,” an anagram of his wife's name, Deborah, boasted that Whole Foods was “systematically destroying [Wild Oats'] viability as a business, market by market, city by city.”

While that statement seems to support the FTC's case that Whole Foods is seeking to eliminate a competitor through its acquisition of Wild Oats, the disclosure of Mackey's pseudonym revealed his long history of posts, many of which bashed Wild Oats as poorly managed and having an inflated share price, even at one-third the $18.50 price per share Whole Foods has offered to pay.

“Their business model doesn't work and they have a bunch of terrible locations — regardless of who owns the company or who is the CEO,” Mackey wrote on the board in February of last year, almost a year to the day before he announced Whole Foods' intention to buy the company.

In a blog post on Whole Foods' own website last week, Mackey said he did not disclose any proprietary information on the boards and that he never intended for them to be linked to him as expressing the views of the company. He also noted they were made long ago and that market conditions had changed.

“I posted on Yahoo! under a pseudonym because I had fun doing it,” he wrote in the blog.

He said he believes the FTC has revealed his identity as rahodeb as a way to embarrass him before the upcoming antitrust trial, scheduled to begin July 31.

“The views articulated by rahodeb sometimes represent what I actually believed and sometimes they didn't. Sometimes I simply played ‘devil's advocate’ for the sheer fun of arguing. Anyone who knows me realizes that I frequently do this in person, too. Rahodeb's postings therefore do not represent any official beliefs, policies or intentions by either Whole Foods Market or by me.”

The topics of the discussions seemed to focus on the quality of Whole Foods' performance, but they often strayed into philosophical arguments about veganism (Mackey said he is a vegan) and politics (he espouses a form of libertarianism). As widely reported last week, Mackey even defended his own haircut in the posts, saying he thought he looked “cute.”

Michael Krestell, an analyst with M Partners, Toronto, said he was surprised to learn about the situation.

“I don't know that anything officially wrong has been done, but it certainly seems like some inappropriate comments and actions, and it's just surprising that a CEO would be engaging in that behavior,” he said. “It's just another distraction for Whole Foods to have to manage.”

Neil Stern, a consultant with McMillan Doolittle, Chicago, said the posts “put into question the proper role of the CEO — the boundaries have really been crossed.”

He said the postings seemed out of character for a company that otherwise has been on the industry's leading edge in many respects.

“Whole Foods has been a paragon of how to run a public company,” he said.

One analyst, who asked not to be identified, said he believes Mackey may be ready to step aside as the CEO.

“I think the reign of John Mackey is coming to an end,” he said. “This may be the tipping point.”

The analyst noted that although shareholders had not yet called for him to step down, the upcoming FTC hearing could help decide his fate.

Krestell of M Partners noted that if shareholders or the board of directors do begin seeking Mackey's resignation quickly, it could put the Wild Oats acquisition in even more jeopardy.

In its filing last week, the FTC presented a more thorough explanation of its reasoning for seeking to block the merger, citing specific examples of pricing strategies pursued by Whole Foods and Wild Oats against each other.

In Boulder, the FTC asserts, Whole Foods was planning price cuts of 10% across the board to compete with the planned opening of a flagship Wild Oats store. Whole Foods projected losses of $150,000 per week in sales to the Wild Oats store, while the opening of a new Safeway “lifestyle” location in Boulder in February of last year only had an impact of $30,000 per week in lost sales, and only for the first three months, according to the FTC filing.

The FTC said Whole Foods' sales and margins appear to be most directly impacted by Wild Oats. Trader Joe's seems to have some impact on sales, the FTC said, and traditional supermarkets have even less impact on Whole Foods' sales.

The contention that Whole Foods and Wild Oats occupy a distinct food retailing niche, apart from traditional supermarkets, is at the core of the FTC's case against the merger. In the filing, the FTC cites past antitrust cases, including the failed Staples-Office Depot merger, in which the courts found that companies can be considered, for antitrust purposes, to compete against each other within a “sub-category” of retailing.

“Premium natural and organic supermarkets create a varied and dynamic experience for shoppers, inviting them to make the premium natural and organic supermarket a destination to which shoppers come not merely to shop, but to gather together, interact and learn, often while enjoying shared eating and other experiences,” the FTC wrote.