FTC Looks to Squash Whole Foods-Wild Oats Deal

Updated from 2:17 p.m. EDT

The Federal Trade Commission plans to file a lawsuit to block Whole Foods' (WFMI) acquisition of rival grocer Wild Oats Markets(OATS), the companies said Tuesday.

The natural-foods chains, which agreed to merge in February, plan to challenge the suit.

"While we disagree with the FTC's position and believe it is without legal and factual merit, we are confident that, once presented with the facts, the Court will agree that this merger is pro-competitive and the FTC's application for an injunction will be denied, thus allowing us to proceed forward with the merger," said Wild Oats Chairman and CEO Greg Mays.

Shares of Wild Oats recently were down 30 cents, or 1.8%, to $16.61. Whole Foods shares were down $1.28, or 3.1%, to $40.41.

Whole Foods agreed to acquire Wild Oats in February for $18.50 a share, or roughly $565 million. The deal was expected to close in April, but the transaction was delayed by FTC requests for more information.

The two companies are the biggest players in the natural-foods space, sparking antitrust concerns. At the end of the first quarter, Wild Oats had 110 stores, while Whole Foods had 194.

Whole Foods argued that the FTC's challenge to the deal doesn't take into account more conventional chains like Safeway (SWY) and Kroger (KR) that have also expanded into the natural-foods space, thus providing more competition.

"The FTC has failed to recognize the robust competition in the supermarket industry, which has grown more intense as competitors increase their offerings of natural, organic and fresh products, renovate their stores and open stores with new banners and formats resembling Whole Foods Market," said Whole Foods Chairman and CEO John Mackey in a statement.

Shares of Whole Foods have been battered in recent months on concerns that the Austin, Texas-based grocery chain's rapid growth is quickly slowing. The acquisition of Wild Oats was expected to help the company continue to expand in new markets.

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