January 12, 2009 / 7:40 PM / 9 years ago

UPDATE 3-US seeks halt to Wild Oats integration, may revive

(Recasts, adds comment from Whole Foods)

By Diane Bartz

WASHINGTON, Jan 12 (Reuters) - U.S. antitrust enforcers asked a court to halt premium grocer Whole Foods’ integration of its former Wild Oats rival and said they may ask for its revival as a separate brand under independent management.

The Federal Trade Commission continues to fight Whole Foods Market Inc’s WFMI.O 2007 acquisition of Wild Oats, saying it was still examining the $565 million deal when it was consummated following the agency’s failure to get a preliminary injunction against it.

The FTC said that if the U.S. District Court for the District of Columbia ruled it had a strong case against Whole Foods, the government would seek to rebrand the acquired stores with their former Wild Oats signs and have an independent management team supervise them.

Whole Foods called the proposed move an “extreme remedy to break up our company.” It added that “no final court decision has found our already-complete merger with Wild Oats to violate any law.”

Most Wild Oats stores have already been absorbed into Whole Foods.

Whole Foods said that since the merger was completed, competition from other supermarkets has increased and Whole Foods Market has reduced the price of many of its products.

“Competition among all supermarkets for shoppers of natural and organic foods has increased, not decreased,” Whole Foods said in a statement.

The FTC also has an internal judicial process under way to determine whether the the deal Whole Foods’ deal violated antitrust law.

FTC attorney Matthew Reilly, who submitted the court filing, raised the possibility that the FTC assessment of the merger could lead the agency to require Whole Foods to divest legacy stores.

“When it gets to the commission and it gets to their final opinion, who knows what the commission will do to fully restore competition,” he told Reuters.

The FTC has previously said that a significant chunk of the Wild Oats stores acquired by Whole Foods could end up being sought as part of a remedy, perhaps requiring divestiture of 40 to 50 stores in 29 markets as well as their distribution channels. Wild Oats had 109 stores at the time of the merger.

The FTC’s battle against Whole Foods was revived last July, when the U.S. Court of Appeals for the District of Columbia said a lower court underestimated the FTC’s likelihood of success in denying the request for a preliminary injunction.

Whole Foods has fought back, challenging the review process at the FTC, one of two agencies that assess mergers.

The FTC votes on whether or not to probe a merger and then, after an investigation, whether it came to the correct conclusion. When a company disagrees with the FTC, it can take the agency to court.

In contrast, the Justice Department takes all merger challenges to court.

Whole Foods’ legal fight has already cost the organic grocery chain $16.5 million dollars, Chief Executive John Mackey has said, and the company faces another $15 million to $20 million in legal bills as the case proceeds through the FTC’s judicial system.

Whole Foods and the FTC held unsuccessful settlement talks in September, according to Mackey.

Shares of Whole Foods closed Monday up 10 cents, or 0.8 percent, at $12.67 on Nasdaq.

Federal Trade Commission vs Whole Foods Market, U.S. District Court, District of Columbia, No. 07-01021. (Reporting by Diane Bartz; Editing by Lisa Von Ahn, Gerald E. McCormick and Tim Dobbyn)

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