Whole Foods, Wild Oats to challenge FTC lawsuit

(Adds Whole Foods comment, stock decline, background, byline)

By Jessica Wohl

CHICAGO, June 5 (Reuters) - Whole Foods Market Inc. (WFMI.O) and Wild Oats Markets Inc. OATS.O said on Tuesday that they would challenge U.S. anti-competition regulators that plan to file a lawsuit aimed at blocking the supermarket chains' proposed merger.

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.

In May, Whole Foods said that staff members of the Federal Trade Commission had voiced concerns over the anti-competitive impact of the planned acquisition.

Now, the FTC is seeking a temporary restraining order pending a federal district court ruling on its request for a preliminary injunction, the companies said on Tuesday.

A spokesman for the FTC declined to comment.

Whole Foods and Wild Oats are the leading players in the organic niche of the food retail industry in the United States, but their total food sales pale in comparison to larger retailers such as leaders Wal-Mart Stores Inc. (WMT.N) and Kroger Co. (KR.N).

"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.

Whole Foods said that the FTC's challenge is based on its contention that the relevant market is limited to natural and organic food stores, excluding other supermarkets. But mainstream grocers have been encroaching on Whole Foods over the past few years, putting pressure on its rapid growth.

Both companies' shares fell in Tuesday afternoon Nasdaq trade. Shares of Austin-based Whole Foods were last down $1.32, or 3.2 percent, at $40.37, after falling as low as $40.25. Shares of Boulder, Colorado-based Wild Oats were down 26 cents at $16.65 after sliding to $16.00. On May 22, Whole Foods extended its tender offer for Wild Oats for a third time, even though enough shares have been tendered, as it waited to hear whether U.S. regulators would challenge the deal.

In February, Whole Foods said it planned to buy smaller rival Wild Oats for $18.50 a share, or about $565 million, to compete better with other grocers selling organic and natural fare. The deal was originally expected to close in April.

(With reporting by Peter Kaplan in Washington)

((Reporting by Jessica Wohl, editing by Deborah Cohen; Reuters Messaging: jessica.wohl.reuters.com@reuters.net; +312-408-8132; e-mail: jessica.wohl@reuters.com)) Keywords: WILDOATS WHOLEFOODS/

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