No Wild Oats for Whole Foods, says FTC

The Federal Trade Commission has said that they would oppose the merger of Wild Oats Market Inc. and Whole Foods Market Inc. and have started legal proceedings in this regard. Whole Foods announced in February that it planned to acquire Wild Oats for $565 million.

The main reason for this according to the anti-trust regulators at FTC is that this merger, if it happens, would bring anti-competitiveness in the market. This would lead to higher prices, lower quality products and fewer choices for the consumers.

Both companies have said that they would fight against the FTC suit ‘tooth and nail’ as FTC has completely ignored the robust competition in the supermarket industry. The FTC on its part argues that the market place is defined by natural and organic food stores and not the broader supermarket industry.

Gregory Mays, the chairman of Wild Oats, argued that consumers would benefit from the merger because his company’s stores would be upgraded and offer better selection. “We are confident that once presented with the facts, the court will agree that this merger is pro-competitive,” Mr. Mays said in a press release.

Neil Currie, an analyst at UBS Investment Research, said in a note to investors that the FTC`s actions were “somewhat at odds” with the recent blurring of lines between stores like Whole Foods and Trader Joe’s and more conventional chains like Publix and Wegmans. He said that 74 percent of natural and organic foods were now sold through mass-market channels like conventional supermarkets.

“While we are somewhat bemused by the FTC`s ruling,” Mr. Currie wrote, “We feel that its lawsuit, aimed at blocking the deal, is a major obstacle that could prove difficult to overcome.”

Market experts believe that the merger is more important for Wild Oats than for Whole foods as it has struggled to compete against its larger rival. For Whole Foods, their future is much more going to be about organic growth and how their new stores do in places like London and Columbus, Ohio etc. If Whole Foods and Wild Oats never end up merging, it’s not a game changer for Whole Foods. It is for Wild Oats.

Whole Foods, which had sales of $5.6 billion last year, has 191 stores in the U.S., Canada and Britain, including 20 in Southern California.

Wild Oats, with $1.2 billion in sales last year, operates 110 stores in the U.S. and Canada under a variety of names. In Southern California, the company has five Wild Oats locations and 26 Henry's Farmers Markets.

Shares of Wild Oats rose 25 cents, or 1.5 percent, to $17.16 Tuesday, while Whole Foods dropped $1.21 a share, or 2.9 percent, to $40.48.