DALLAS (AP) - Whole Foods Market Inc. said Tuesday it has lined
up financing to complete its $565 million purchase of rival organic and natural
foods grocer Wild Oats Markets Inc., ending a six-month battle against federal
regulators who tried to block the deal on antitrust grounds.
The company said it took out a five-year, $700 million loan to fund the
deal, which also includes the assumption of $137 million in Wild Oats debt.
"While closing this merger has taken longer than we anticipated, we are very
excited to now begin the integration process," Whole Foods Chief Executive John
Mackey said. He said the deal "will result in a company that is much stronger
and better positioned for the future."
The fight to buy Wild Oats was bruising, and both Mackey and the FTC emerged
from the fight with black eyes, according to former FTC officials and analysts.
For antitrust regulators, Whole Foods is the latest in a string of setbacks
in their attempts to prevent acquisitions that they believe hurt competition.
And Mackey's image was damaged when it was discovered that he made anonymous
comments on financial Web sites touting his company's stock while denigrating
Wild Oats as being poorly managed and overpriced. The Securities and Exchange
Commission is informally investigating the postings.
In court documents, the FTC also released the content of internal company
memos that portrayed Whole Foods as a voracious competitor eager to eliminate a
rival and keep prices high. In one note to his board, Mackey said buying Wild
Oats would allow his company to avoid "nasty price wars" in several cities where
the chains compete.
Joseph J. Simons, a former top antitrust official at the FTC, said
regulators became obsessed with Mackey's comments and failed to build a winning
case based on economic analysis.
"It's nice to have the executives saying helpful things for your case,"
Simons said, "but if everything else goes the other way, that's not enough. They
have to pay more attention to the economic evidence."
Simons said Whole Foods' victory will make other companies fight more
aggressively when regulators try to block acquisitions.
Joseph Winterscheid, a Washington antitrust lawyer, said FTC officials "had
some hot documents" that they thought gave the commission the upper hand.
"Companies faced with hot documents will very often cave," Winterscheid
said. "This time, they didn't blink."
The agency's defeat over Whole Foods comes after FTC and Justice Department
regulators also tried and failed to stop other recent deals, including Oracle
Corp.'s hostile takeover of PeopleSoft Inc.; Arch Coal Inc.'s acquisition of
Triton Coal Co.; and Western Refining Inc.'s purchase of rival Giant Industries
Inc.
In the Whole Foods-Wild Oats case, FTC regulators focused on the two chains'
dominance in the organic and natural foods market. Whole Foods countered that it
faced plenty of competition from Kroger Co., Safeway Co. and other big
supermarket chains that have expanded their offerings of organic food.
U.S. District Judge Paul L. Friedman ruled for Whole Foods, saying that
about 60 percent of natural and organic foods are sold by conventional grocery
stores.
Whole Foods had vowed to complete the purchase of Wild Oats quickly after
getting a green light from the courts. This week, it did just that.
The Austin-based company announced late Monday that its tender offer had
succeeded in winning 84.1 percent of Wild Oats shares at $18.50 apiece, and that
another 12.7 percent of Wild Oats shares were subject to guaranteed delivery by
midweek. It will acquire the remaining outstanding shares under merger
procedures of Delaware law, where the company is incorporated.
Standard & Poor's Rating Services cut Whole Foods debt below investment
grade because of the borrowing used to finance the acquisition.
Whole Foods shares lost 99 cents, or 2.2 percent, to $44.76, and Wild Oats
shares rose 2 cents to the deal price of $18.50.
Boulder, Colo.-based Wild Oats has about 110 stores and annual sales of
about $1.2 billion, compared to Whole Foods' $5.6 billion. Whole Foods plans to
sell 35 Henry's and Sun Harvest stores and evaluate the fate of each Wild Oats
outlet.
Mackey said buying Wild Oats would lead to "significant" cost savings and
greater purchasing power, but some industry observers remained skeptical.
"They get some additional store locations at probably a reasonable price
versus building them, but I'm not convinced that this is a marriage made in
heaven," said W. Frank Dell II, a grocery consultant based in Connecticut.
Dell predicted Whole Foods will close many smaller Wild Oats locations.
He also doubted that the flap over Mackey's e-mails would hurt the chain's
business.
"Shoppers don't care unless the chairman goes to jail," he said. "This guy
is obviously a visionary. He has a lot of creative talents, and that served him
well when he had a small company. Now he's got a big company."
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