A trial judge improperly dismissed a Federal Trade Commission challenge to the $565 million merger between Whole Foods Markets and Wild Oats Markets, the U.S. Court of Appeals for the D.C. Circuit ruled today.
The D.C. Circuit opinion, written by Judge Janice Rogers Brown, says the trial court underestimated the FTC’s likelihood of success on the merits and did not take enough time to determine whether the merger violated antitrust law.
“The court should have taken whatever time it needed to consider the FTC's evidence fully,” Brown wrote for the divided court. “The district court must independently exercise its discretion considering the circumstances of the case, including the fact that the merger has taken place.”
Whole Foods completed its purchase of Wild Oats less than two weeks after U.S. District Judge Paul Friedman denied an FTC request for an injunction to block the merger last August. Now that the two companies are well on the way to becoming fully integrated, the options for how to address the FTC’s concerns may be limited.
“Rather than trying to unscramble the eggs and saying the two chains can’t merge, the district court may focus on specific locations where there are only two stores and require the chains to sell off one store to a third party,” says Jane Willis, a partner in Ropes & Gray’s antitrust practice in Boston.
“It wouldn’t surprise me if they came to a settlement instead of further litigating the matter,” she adds.
The combined companies have almost 300 stores. Willis says there are 18 cities where the FTC contends divesting some stores may be required to avoid creating a monopoly.
According to Willis, the D.C. Circuit opinion places an unusual emphasis on the stores’ core customers, who would presumably continue to frequent the premium natural and organic food stores even if their prices rose, instead of their marginal customers, who would seek out alternatives if Whole Foods increased its prices.
Willis dubs this the major takeaway from the opinion: “With respect to market definition, people historically think about the marginal customers and where they go in the event of price increases. This marks an increased emphasis on the core customers.”