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Whole Foods, FTC agree on Wild Oats settlement

An appointed trustee will sell leases for 19 closed Wild Oats stores and divest 13 open stores. The FTC said Whole Foods' 2007 acquisition violated antitrust laws.

March 07, 2009|Jerry Hirsch

Whole Foods Market Inc. announced a settlement with the Federal Trade Commission on Friday that ended the government's efforts to unwind the grocer's 2007 acquisition of Wild Oats Markets Inc.

The FTC said the combination of the two natural and organic food retailers threatened competition and violated antitrust regulations.

The settlement calls for the appointment of a trustee who will sell the leases for 19 closed Wild Oats stores, including 10 that were shut by Wild Oats before the merger and nine closed by Whole Foods. The trustee will also divest 13 open stores, including 12 that were once Wild Oats markets and one Whole Foods store.

Most of the sites are in Arizona, Colorado, Nevada and Oregon. None are in California.

Both sides can portray the settlement as a victory, said Rebecca Nelson, an antitrust attorney at the Bryan Cave law firm in St. Louis.

"The FTC can claim victory by giving consumers the Wild Oats brand and requiring that stores that had been closed will potentially be reopened by a new owner," Nelson said.

The FTC can also claim that the settlement sets a precedent for future cases by allowing it to say that even narrow markets, such as natural and organic grocery stores in a sea of traditional supermarkets, represent an area where antitrust issues apply.

But the settlement allows Whole Foods to keep "a majority of the stores it gained in the acquisition, which gives it many of the benefits it sought -- a broader footprint and improved economies of scale, for example," Nelson said.

Austin, Texas-based Whole Foods purchased the 110-store Wild Oats chain for $565 million.

The settlement will leave Whole Foods with more than 260 stores in the U.S., Canada and Britain that have combined sales of about $8 billion.

"We are pleased to have reached a mutually satisfactory agreement with the FTC," Whole Foods Chief Executive John Mackey said. "We believe it was in the best interests of all our stakeholders to resolve this matter so we can dedicate our full attention to selling the highest quality foods available."

The 13 open stores that are for sale will conduct "business as usual," Mackey said. Employees of the stores that are sold will have a choice of either a guaranteed job offer in another store or an enhanced severance package, he said.

The FTC said the settlement would "substantially restore competition that was eliminated" by the purchase by Whole Foods of what the government considered the grocery chain's "closest rival" and "resolves agency charges that the acquisition violated federal antitrust laws."

The FTC had sought a court ruling forcing Whole Foods to restore the Wild Oats name to the acquired stores and to appoint a trustee who would create an independent management team for the former Wild Oats assets and oversee Whole Foods' compliance with the order.

"American consumers will see more choices and lower prices for organic foods," FTC Chairman Jon Leibowitz said. "It allows the FTC to shift resources to other important matters and Whole Foods to move on with its business."

At the FTC's behest, the agreement is subject to a 30-day public comment period ending April 6, after which the commission will issue a final ruling.

After receiving final approval, Whole Foods will record a noncash charge of about $19 million or less relating to the potential sale of the 13 operating stores. These stores had combined sales of about $31 million in the first quarter of fiscal 2009, or about 1.3% of the company's total sales of $2.5 billion.

In January, Los Angeles supermarket mogul Ronald Burkle disclosed in a regulatory filing that he had purchased a 7% stake in Whole Foods.

In the Securities and Exchange Commission filing, Burkle said he believed that shares of the chain were undervalued and "that there are substantial opportunities for the company to improve operations and its pricing image while maintaining its high-quality product offering."

Burkle built his fortune, which was estimated to be about $3 billion before the recent financial market meltdown, buying and selling supermarket chains such as Ralphs, Alpha Beta, Fred Meyer Inc. and Food4Less.

Whole Foods shares rose 30 cents, or nearly 3%, to $12.08 on Friday. The supermarket chain's stock plunged 77% in 2008.

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jerry.hirsch@latimes.com

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