Appeals Crt Faults Rejection Of FTC Suit Vs Whole Foods

By Mark H. Anderson and Brent Kendall

Of DOW JONES NEWSWIRES

July 29, 2008 11:48 a.m.

Wall Street Journal

WASHINGTON (Dow Jones)--A federal appeals court Tuesday said a trial judge improperly dismissed the Federal Trade Commission's challenge to the 2007 merger between Whole Foods Markets Inc. (WFMI) and Wild Oats Markets Inc.

The ruling revives legal proceedings over the merger and may give the FTC a shot at forcing Whole Foods to sell some operations to meet competitive concerns raised by the merger.

The two companies merged in a $565 million transaction after a federal trial court rejected the FTC's challenge. The 2-1 ruling, issued by the Washington-based U.S. Circuit Court of Appeals, said the trial judge handling the case made mistakes when he expedited review of the agency's challenge.

"We appreciate that the district court expedited the proceeding as a courtesy to the defendants," the ruling said. "But the court should have taken whatever time it needed to consider the FTC's evidence fully." The ruling added that the trial judge did not properly analyze merger data and wrongly concluded the FTC had little chance of prevailing in its challenge to the merger.

"We reverse the district court's conclusion that the FTC showed no likelihood of success," the panel's majority said.

The decision revives the FTC's case regarding the merger transaction and the trial judge must now take a fresh look at the strength of the government's case.

It isn't immediately clear what impact the ruling might have on the combined companies, which merged last year. The FTC argued earlier this year in a legal brief filed with the appeals court that the full integration of the two companies would take several years to complete.

The commission asked for the court to stop Whole Foods from rebranding or closing the remaining Wild Oats stores "to preserve the possibility of reconstituting Wild Oats as an independent competitor." The appeals court did not rule on the FTC's request, choosing instead to leave that decision to the trial judge.

Whole Foods and Wild Oats agreed to merge in February, 2007. The FTC challenged the combination in June, leading to a flurry of legal activity that ended in late August, 2007 after the federal court refused to delay the merger. Whole Foods is the dominate natural and organic foods retailer and Wild Oats was a much smaller rival. The companies argued they faced competition from traditional grocery retailers while the FTC has maintained the merger would reduce competition in the natural and organic foods market.

-By Mark H. Anderson, Dow Jones Newswires

-By Brent Kendall, Dow Jones Newswires

online.wsj.com