Legal News

Making Sense of the Whole Foods/FTC Antitrust Settlement

By Ashby Jones

Antitrust gadflies are going organic, fair-trade bananas today with news of the settlement between Whole Foods and the Federal Trade Commission, which in 2007 challenged the company’s proposed merger with competitor Wild Oats. Click here for the WSJ story; here for Whole Foods’s press release; here for the FTC consent order.

In the settlement announced Friday, Whole Foods agreed to divest itself of 31 Wild Oats stores in 12 states, including 19 stores that already have been closed, and one Whole Foods store. Whole Foods also agreed to relinquish the rights to the Wild Oats brand, which could be sold to a potential competitor.

In exchange, the FTC will drop its legal bid to undo the merger, a bid that had wound up and down through the federal courts (Click here, here and here for earlier LB posts.) The commission had argued that the merger would lessen competition in the market for natural and organic foods.

So what, when all’s said and done, do we make of the settlement? “It’s pretty obviously the result of deep compromising,” says Marc Schildkraut, a partner who specializes in antitrust at Howrey in D.C. (Howrey did not work on the Whole Foods/Wild Oats merger.) “Neither side really had a complete victory.”

In Schildkraut’s mind, however, the deal featured some unusual elements. For starters, he says, the structure of the deal doesn’t guarantee that a Wild Oats-type competitor to Whole Foods will emerge. The deal doesn’t require the trustee in charge of selling the earmarked stores to sell to a single buyer. “The FTC didn’t insist that the trustee sell to a chain,” he says. “That could mean that a lot of the stores go to single-store operators, which isn’t always the best way to guarantee competition.”

Secondly, while Whole Foods has to give up its intellectual property rights in Wild Oats, there’s no guarantee that the buyer of the IP rights won’t be a smaller operator than Wild Oats. So the value of the Wild Oats name could ultimately fall quite a bit.

Lastly, Schildkraut questions whether the trustee will even find buyers for the stores, especially those that are already closed. “And they won’t necessarily come cheap,” he adds. “The new buyers will in most cases have to pick up existing leases. These aren’t pennies-on-the dollar deals.”

So does Schildkraut think it was a total win for Whole Foods? Not necessarily. “I’m sure they would have preferred not to go through two years of litigation and preferred not to divest the stores and the Wild Oats name and preferred not to have the competition that the FTC will try to generate,” he says. “But it could have been a lot worse.”

Full post as published by Law Blog - WSJ.com on March 06, 2009 (boomark / email).