Judge unmoved by Whole Foods CEO's merger comments

WASHINGTON (Reuters) - Controversial e-mails by Whole Foods Market Inc's WFMI.O chief executive were given little weight by the judge who last week rejected a request by U.S. antitrust authorities to block Whole Foods' acquisition of Wild Oats Markets Inc OATS.O.

In a 93-page opinion made public on Tuesday, U.S. District Judge Paul Friedman made no mention of e-mails sent by Whole Foods CEO John Mackey, which were a key part of the government’s effort to show the deal is anticompetitive.

The opinion underscores that “antitrust is really not about what people say. It really is about how markets work and what companies can do after a merger,” said antitrust lawyer Christopher MacAvoy, of law firm Howrey LLP.

The FTC had shown the judge e-mails that Mackey sent to the Whole Foods board of directors in which he said the deal would prevent a price war between the two organic grocers. In one message, Mackey said eliminating Wild Oats would head off new competition “forever, or almost forever.”

In a separate court document made public on Tuesday, the FTC raised the issue as a possible basis for appealing Friedman’s decision.

The FTC questioned whether it was a mistake for the judge “to assign no weight to contemporaneous, high-level statements and strategic documents authored by senior executives, describing their view of the market realities and of the effect of the merger.”

The FTC sued to block the $565 million deal in June, saying it would hobble competition in the market for natural and organic groceries.

But in an August 16 order, Judge Friedman rejected the FTC’s request for a preliminary injunction against the deal. His full opinion was initially sealed, but an edited version was released by the court on Tuesday.

Friedman also rejected an FTC request for a stay while it appeals. But on Monday a U.S. appeals court ordered the companies to hold off on closing the deal while it considers whether to grant the FTC an injunction while it appeals.

Whole Foods has extended its tender offer to buy Wild Oats until August 27.

In his opinion, Friedman agreed with Whole Foods’ argument that the deal would not be anticompetitive because the company would face competition from traditional supermarkets.

“The evidence before the court demonstrates that conventional or more traditional supermarkets today compete for the customers who shop at Whole Foods and Wild Oats,” the judge wrote in his opinion.

Friedman agreed with Whole Foods on another key point, concluding that the company would find it unprofitable to raise prices after the merger because such a move would drive away “marginal” organic grocery customers.

“If, after the merger, Whole Foods raised prices or permitted quality to decline, customers could and would easily shift their purchases of natural and organic products from Whole Foods to other supermarkets,” Friedman said.

Howrey LLP’s MacAvoy said the judge’s opinion was “well-reasoned and well-documented.”

Mark Ostrau, co-chair of law firm Fenwick & West’s antitrust group, expressed a similar view.

“Seeing the judge’s thinking process makes it more difficult for the appellate court to overturn his analysis because it comes down to weighing the facts, and in most cases the appellate court would defer to the lower court on those types of decisions,” Ostrau said.