FTC's Tall Order: Unscrambling the Organic Eggs

In continuing to pursue its antitrust case against Whole Foods' acquisition of Wild Oats, the Federal Trade Commission cannot expect the two chains to somehow “un-merge.”

As John Mackey, the chairman and chief executive officer of Whole Foods, told analysts in the company's most recent earnings call, several acquired stores have already been closed and others have been converted to the Whole Foods banner. In addition, much of the former Wild Oats support infrastructure has been dissolved.

Yet the FTC has hewed to a relentless course of legal action against the $565 million merger, now almost a full year after the deal has closed.

In fact, the commission has never stopped in its pursuit of an administrative hearing to scuttle the deal, despite its failure last year to obtain a preliminary injunction in District Court. Late last month, a three-judge panel of the Court of Appeals ruled 2-1 that the District Court erred in allowing the merger to proceed. However, the FTC's further request for a “stay of integration” was denied.

So Whole Foods is free to continue to forge ahead with its integration process, closing more locations and converting others, while the gears of the antitrust justice system slowly grind away in the opposite direction.

Next on the agenda is a Sept. 8 hearing to set a schedule for the FTC's administrative proceedings. Those proceedings would involve the appointment of an administrative law judge. Meanwhile, Whole Foods has about three weeks left to seek what is called an “en banque” hearing before the full Appeals Court. The chain has indicated it is looking into such an appeal.

If Whole Foods' request for an appeal is denied, the FTC once again can ask for a court order to stop the integration process.

There are, however, some good reasons Whole Foods should consider offering a settlement. The chain's operational problems seem to be multiplying by the day, with sales growth declining, new-store development slowing, layoffs at headquarters and now a massive beef recall. It certainly doesn't need to continue fighting an expensive legal battle on top of all that.

It's not clear what it would take to settle the case — or even if it can be settled. The FTC previously identified 25 markets where it saw potential competition between the two chains, so Whole Foods presumably would have to start there by finding a buyer for some stores. As reported in the Aug. 4 issue of SN, however, finding a suitable buyer to continue operating the stores as “premium natural and organic” outlets might not be so easy.

But the FTC might be willing to compromise, especially with the most recent ruling of the Court of Appeals going in its favor. That would set a powerful precedent for future antitrust cases, bolstering the weight of FTC arguments, legal experts have told SN.

The FTC knows it can't unscramble the eggs. Maybe it just wants a better recipe for keeping them from getting scrambled in the first place.