The Federal Trade Commission wants to bring Wild Oats back to Nashville and other cities across the country months after Whole Foods acquired its competitor and converted many stores to its own organic supermarket brand.
The government agency made a filing Monday in U.S. District Court in Washington telling the judge to halt the integration of Wild Oats and Whole Foods Market Inc., part of an ongoing legal battle over the August 2007 merger of the two companies.
Whole Foods has two stores in the Nashville area — one newly built grocery store in Green Hills and a converted Wild Oats market in Cool Springs.
Local attorneys said the FTC's move was an unusual attempt to divest a merged company long after the two companies had already been joined — a process that Whole Foods said it started 18 months ago.
One of the FTC's requests to the judge is the "rebranding as 'Wild Oats' all stores that were under the 'Wild Oats' banner at the time of the acquisition."
"The eggs have been scrambled, and it's hard to know how they would be unscrambled,'' said Luke Froeb, a Vanderbilt associate business professor and former director of the bureau of economics at the Federal Trade Commission, commenting on the case. "This would be unprecedented in antitrust law, to force Whole Foods to build a whole separate brand."
Steven Douse, an attorney at King & Ballow in Nashville and an adjunct professor at Vanderbilt University, said it's possible that Whole Foods could be forced to sell some assets, including parts of its business in Nashville.
He said the case illustrates how aggressive the FTC has become when the agency thinks it's in the right. "It's been fairly rare for a merger to be challenged after it's consummated,'' Douse said. "This is a case that has gotten a lot of attention."
If a judge finds the FTC has a strong enough case, the regulators say they could completely unwind the companies.
Federal regulators said in their court filing that the request is "appropriate, and reasonable" to preserve the assets of Wild Oats until the conclusion of the hearings. The FTC said it would not comment further on pending litigation.
Whole Foods officials called the FTC's request "absurd" and said the process of integrating Wild Oats is completed.
"They want us to put the toothpaste back in the tube," said Lanny Davis, an attorney representing Whole Foods. "How can you halt something that is already done?"
Chain spent millionsWhole Foods bought Wild Oats Markets Inc. of Boulder, Colo., for $565 million. The Austin, Texas-based chain then spent millions more converting Wild Oats stores into Whole Foods sites and selling off others.
A former Wild Oats store in Nashville that the chain used to lease off Hillsboro Pike has since become a Trader Joe's, and Whole Foods opened a new location in the Hill Center at Green Hills in November 2007.
The FTC's challenge to the merger, which began in 2007 before the acquisition closed, has left matters in legal limbo. The FTC has argued the deal would create a natural foods monopoly.
As part of its argument, the government has said that Whole Foods planned to go into new markets where Wild Oats dominated, including Nashville, to offer competition before the merger was consummated.
Whole Foods continues to argue that organic and natural foods are widely available from other sources, and it has said the FTC's process of reviewing its deal was flawed. Whole Foods sued the FTC for violating its rights.
The U.S. District Court is expected to decide in coming months whether public interest demands a full-scale hearing. A separate antitrust hearing is scheduled later this year.
"First, they pronounce us guilty without one day in court of evidence," Davis said. "Now, they are demanding remedy before we even go to court."
Whole Foods' lawyers are seeking information that would illustrate the grocer is not a monopoly in the organic food arena, but many other grocers resist sharing proprietary information that may support its contention.
On Tuesday, Whole Foods plans to urge other grocers to share business practice information to buttress its case that there is enough competition.
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