This could get very interesting:
Whole Foods Sues Federal Trade Commission
By JOHN R. WILKE and DAVID KESMODEL
Whole Foods Market Inc. launched a rare corporate counterattack on a federal agency, appealing to Congress and filing a lawsuit to stop a continuing Federal Trade Commission challenge to a merger that closed a year ago.
The lawsuit, filed Monday in U.S. District Court in Washington, alleges prejudice and due-process violations against Whole Foods by the FTC, which challenged the grocer's $565 million buyout of Wild Oats. The agency initially lost before the federal court, and the companies merged in August 2007.
John Mackey, the chief executive of Whole Foods, accused the FTC of running "a rigged game" that handcuffs retailers and other companies under its jurisdiction. In an interview, he said, "The FTC has already condemned the deal. How can we get a fair trial when they've made up their mind?" He added that the company would be better off if it hadn't bought Wild Oats.
Whole Foods stock has fallen more than 70% in the past year. It rose 0.19% to $10.62 a share in 4 p.m. Nasdaq trading Monday.
The import of Whole Foods's lawsuit reaches beyond the deal because it spotlights divergent standards that companies sometimes face at the FTC and the Justice Department, which share jurisdiction for merger reviews. The Justice Department must quickly make its case in federal court, and it usually walks away from a case when it loses. The FTC has an added administrative process that the agency can use even if it loses its initial court case.
The lawsuit and lobbying effort on Capitol Hill is the latest twist in the battle between the FTC and Whole Foods, which says it has already spent more than $12 million on legal fees and millions more upgrading and rebranding dozens of Wild Oats stores. The FTC won the latest round in November when the court of appeals in Washington denied a request by Whole Foods for a rehearing in federal court, not a trial before the FTC. "The merger is unlawful and should be undone," David Wales, the agency's competition chief, said after the appeals court ruled last month.
"Now," Mr. Mackey said, "instead of concentrating on our business, we are forced to focus on dealing with regulators in Washington at a time when business is declining."
A spokeswoman for the FTC declined to comment. The agency has based its continuing case against the company on the argument that there is a "premium and natural" supermarket category dominated by Whole Foods.
The FTC has also cited tough language by the company's combative chief executive, citing his plan to "avoid nasty price wars" and his assertion that buying Wild Oats would "eliminate forever" the possibility that a big conventional grocer such as Kroger Co. could create a competing national natural-foods chain.
The brawl with the FTC comes during one of the most trying stretches in the 28-year-old company's history. "If I could get the money back, I'd take it," Mr. Mackey said. "We would be better off today if we hadn't done this deal—taking on all this debt right before the economy collapsed."
Bob Summers, an analyst with Pali Research, said Whole Foods has "a long list" of other challenges that have plagued the company besides the battle with the FTC. He added: "The case has gotten a little personal on both sides." Indeed, in its complaint, Whole Foods cited the role of one FTC commissioner, Tom Rosch, by name. "The FTC lawyers are spending taxpayer money and Mackey is spending shareholder money, and both are probably wrong," Mr. Summers said.
Until just a few years ago, Whole Foods consistently registered double-digit increases in same-store sales, a key measure, and became a favorite on Wall Street.
However, not long after the company began building larger, costlier stores and agreed to buy Wild Oats, the economy began slipping, causing shoppers to cut spending on discretionary items such as the gourmet goods sold at Whole Foods. The grocer also has encountered tougher competition from conventional chains, which are stocking more organic and natural foods.
Last month, Whole Foods announced a sharp decline in its quarterly profit, along with anemic same-store sales growth. But it got a lift when private-equity firm Green Equity Investors V LP agreed to invest $425 million in exchange for preferred stock equal to a 17% stake. That gave Whole Foods cash to continue to service debt and grow through the downturn. It is also working to change the perception that it is an expensive place to shop, offering discounts, coupons and other promotions.
Whole Foods, Austin, Texas, was co-founded by Mr. Mackey in 1980 and operates about 280 stores in the U.S., Canada and the U.K. Revenue was $8 billion in the fiscal year ended Sept. 28.
Write to John R. Wilke at john.wilke@wsj.com and David Kesmodel at david.kesmodel@wsj.com
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