Whole Foods, Wild Oats to challenge FTC lawsuit

By Jessica Wohl

CHICAGO (Reuters) - U.S. antitrust authorities said on Tuesday they would file suit to block Whole Foods Market Inc.'s (WFMI.O) proposed acquisition of rival Wild Oats Markets Inc. OATS.O on grounds that the deal would hobble competition in the market for natural and organic groceries.

The Federal Trade Commission said it would challenge the transaction in federal court because it would eliminate competition between "two uniquely close competitors" in many local markets around the United States.

"If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers," FTC competition bureau chief Jeffrey Schmidt said in a statement.

However, the companies said they would fight the FTC in court, arguing that the merger should be allowed to proceed in light of the fierce competition in overall grocery business.

Whole Foods, the largest natural and organic grocer, announced plans to buy Wild Oats in February, after coming under increased pressure from mainstream grocers that were selling more organic, natural and prepared fare.

The lawsuit comes less than a month after Whole Foods said FTC staff members had voiced concerns over the perceived anti-competitive impact of the planned deal.

The FTC is seeking a temporary restraining order on Whole Foods buying Wild Oats shares until the U.S. District Court for the District of Columbia resolves the FTC's request for a preliminary injunction.

Whole Foods asserts that the FTC is looking at the deal in the wrong way by focusing on the natural and organic grocers, rather than looking at the overall industry.

"ROBUST COMPETITION"

Whole Foods and Wild Oats lead the organic niche, but their total food sales pale in comparison to larger retailers.

"The FTC has failed to recognize the robust competition in the supermarket industry, which has grown more intense," Whole Foods Chairman and Chief Executive John Mackey said in a statement.

The FTC countered that the Whole Foods and Wild Oats compete in a market that is separate from the traditional grocery market and seek out different customers than traditional grocery stores.

"Whole Foods' and Wild Oats' customers are buying something more than just the food product -- they are seeking a shopping 'experience,' where environment can matter as much as price," the FTC said.

However, the two companies pointed out that mainstream grocers have been encroaching on Whole Foods over the past few years, putting pressure on its rapid growth.

Whole Foods, which has 195 stores, rang up less than $5.61 billion in sales in its fiscal year ended in September, while Wild Oats has annual sales of about $1.2 billion and 110 stores.