The Federal Trade Commission's antitrust concerns about Whole Foods Market's (Nasdaq: WFMI ) acquisition of Wild Oats seemed pretty ridiculous last year. But hold onto your hats: The U.S. Court of Appeals has overturned last year's denial of the FTC's request to block the deal -- which, of course, has already happened.
This week's court ruling might be amusing if it wasn't such a potent combination of silly and annoying.
Whole Foods has already been busy integrating Wild Oats (and if anything, it's been a drag on profitability thus far).
Things have changed since the FTC first began its rather strange crusade against the Whole Foods/Wild Oats deal. These days, consumers are dealing with a more complicated decision when they mull whether they will go to Whole Foods, Safeway (NYSE: SWY ) , Kroger (NYSE: KR ) , Trader Joe's, or Wal-Mart (NYSE: WMT ) for groceries. They're dealing with extremely daunting food price inflation. For many, the decision of where to shop has become exponentially less whimsical.
A Wall Street Journal blog post shed some light on why the Court of Appeals has decided to let this dead horse get beaten once again. Apparently the FTC didn't do a good job communicating one of the major pieces of "evidence" leading to its problems with the deal: the impact on "core" customers, as opposed to "marginal" ones.
"Core" customers are supposedly loyal, committed customers, less likely to go to other stores, as opposed to "marginal" customers, who are supposedly more likely to seek out better prices. The Court of Appeals believes that Judge Paul Friedman, who blocked the FTC last summer, considered only "marginal" customers in his decision.
This sounds like academic balderdash to me, so I can't wait for the next installment in this terrible summer sequel to see if this makes an iota of sense. Right now, it sounds to me like the government thinks it should protect "core" organic customers from not only a monopolistic Whole Foods, but also from themselves. Does that mean these people are being victimized by their own choices (or their own apparent inability to make such choices)?
The FTC spilled the beans on some of Whole Foods' competitive secrets last year (another choice moment, to be sure), and one of the tidbits was the hardly shocking concept that Whole Foods targets communities with highly educated consumers. Well if they're highly educated, one would like to think they're capable of making decisions concerning consumption.
So I guess this means the government feels it needs to protect people who, for whatever reason, don't shop around according to price? (I guess it is bailing out some people who paid way too much for houses, come to think of it.)
Furthermore, if shoppers are bummed that Wild Oats has been absorbed, they can either deal with it, go to Trader Joe's, really show some spunk and look up an independent organic store or farm, or suck it up and go to Wal-Mart. I have a funny feeling that times of economic distress show how loyal some consumers aren't. Whole Foods has admitted it needs to communicate value to its customers, given stepped up competition.
Maybe I'm missing something here, but the Court of Appeals' supposed clarification leaves the "real" issue at hand sounding just as silly as the whole thing sounded before.
We've got bigger problems than organic grocery "monopolies"
With gas and food prices as high as they are, circling back and attacking Whole Foods' acquisition of Wild Oats really makes me think these folks are still out of touch with reality and even worse, don't mind wasting taxpayer money.
The last thing we need is one more reason to believe the government is wasting even more taxpayer money, right? Yes, by all means, bail out Fannie Mae (NYSE: FNM ) , Freddie Mac (NYSE: FRE ) , and any "too-big-to-fail" company that brought about its own downfall. And then, by all means, put the cherry on top by saving us all from "evil" Whole Foods Market while you're at it.
Here's another angle: How many other acquisitions could be unwound with this kind of reasoning? Hey, the newly merged Sirius XM Radio (Nasdaq: SIRI ) might be unfair to "core" satellite radio listeners. Those folks might be terribly victimized by satellite radio's current monopolistic stranglehold on radio personalities or the fact that they can actually access some stations that broadcast something other than pop-music bile in constant rotation. Whatever will they do? They might be too ignorant to recognize the reality that they have other options, like not subscribing.
Reality check in aisle 1
As a shareholder, I'd say Whole Foods Market has plenty of competitive challenges right now, thank you very much, and even though I have faith the company can persevere, that doesn't mean those challenges don't exist.
We've got some major economic problems in the U.S. now, and call me crazy, but Whole Foods' completed acquisition of Wild Oats seems really low on any list of concerns consumers might have. I guess that isn't stopping the FTC's bizarre and dogged grudge match against the grocer, though.
- Check out some cases for and against Whole Foods.
- Fool Tim Beyers gives us 5 funny reasons the Feds won't leave Whole Foods alone. (I agree, free-range chickens can be mighty dangerous.)
- The Rahodeb incident was a strange byproduct of the acquisition, but Bill Mann reminded us that, news flash: John Mackey has an ego.