Federal Court Allows Specialty Food Store Merger

August 16, 2007 | Roger McEowen

 

On August 16, the U.S. District Court for the District of Columbia approved the purchase of Wild Oats Markets, Inc. by rival food store chain Whole Foods, Inc.  Whole Foods operates 194 stores in North America and the U.K, while Wild Oats operates 115 natural food stores and farmers’ markets in 23 states and British Columbia, Canada.  Both firms are engaged in the business of selling grocery products, with an emphasis on natural and organic foods.  Earlier this year, Whole Foods announced its plans to acquire Wild Oats for an estimated $566 million and the two companies entered into a formal merger agreement on February 21, 2007.  Days later, the U.S. Federal Trade Commission (FTC) issued an administrative complaint challenging the acquisition.  The FTC claimed that the operation of premium natural and organic supermarkets is a distinct line of commerce within the meaning of Section 7 of the Clayton Act.  The FTC pointed out that the companies are the only two nationwide operators of premium natural and organic supermarkets in the U.S., and are each other’s closest competitor in 21 geographic markets.  As such, FTC claimed that consumers in those 21 markets benefit from price and non-price competition between the two companies which the acquisition would negate. 

The court disagreed, reasoning that the relevant product market was the entire market for the retail sale of food and grocery items in supermarkets rather than solely the market for premium and natural organic supermarkets.  The court noted that Whole Foods, Inc., carries categories of traditional food products in addition to specialty products.  The FTC requested a stay pending approval, but the appellate court denied the request.  Federal Trade Commission v. Whole Foods Market, Inc. et al., No. 07-1021(PLF), 2007 U.S. Dist, LEXIS 61331 (D.D.C. Aug. 16, 2007).