If Whole Foods Sues, Why Can't Sirius?

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In a gutsy move, Whole Foods Market (Nasdaq: WFMI  ) is suing the Federal Trade Commission, firing back at the FTC's protracted efforts to undo its already integrated acquisition of smaller rival Wild Oats.

A regulator needlessly dragging out the merger process, forcing a company to jump through redundant hoops, and ultimately debilitating the combined company at the end of the ordeal? Am I the only one with a deja vu moment, or is this a lot like the excruciatingly long FCC approval process for Sirius XM Radio (Nasdaq: SIRI  ) ?

The cases are admittedly far from identical. The FTC is relentlessly trying to decouple the two grocers after their merger, while the FCC dragged its feet from February 2007 until summer 2008 before finally ushering XM and Sirius into the honeymoon suite -- just in time to face massive debt obligations. Still, both mergers can partly blame regulator interference for their subsequent fall from Mr. Market's graces.

Whole Foods and Wild Oats should have been a match made in heaven, blessed by greater economies of scale. And the sheer improbability that regulators would ever approve a merger of XM and Sirius should have sent the stock soaring when the deal actually came through.

Alas, Wall Street and I haven't seen eye to eye in these scenarios. Shares of Whole Foods have shed 72% of their value this year. Sirius XM has endured an even harsher 95% drop. The market indices may have been slammed this year, but Whole Foods' and Sirius's returns are downright pulverized.

I'm not suggesting that either regulatory body should have given either proposed deal an immediate blessing. However, it's hard to imagine Sirius shares being swapped for less than three nickels if Kevin Martin's agency had simply killed the deal a few months after it was announced. A solo Sirius would have been able to get itself closer to cash flow-positive without help from XM.

In my modest opinion, both cases' monopoly allegations are ultimately baseless. Conventional grocers continue to expand their space for organic products. Even mainstream companies like General Mills (NYSE: GIS  ) have made the switch to whole grain in all of their breakfast cereals. Terrestrial radio is clearly a rival to satellite; why else would the National Association of Broadcasters have spent so much money lobbying against the deal?

I understand that regulators have to be cautious. However, they had no problem letting GameStop (NYSE: GME  ) devour Electronics Boutique. Even though both companies were the category-killers in dedicated video game retail, neither was a match for larger chains like Wal-Mart (NYSE: WMT  ) . Similarly, organic grocers and satellite radio are simply niches in the larger supermarket and broadcasting specialties.

Even if I'm wrong, at what point does hounding a company get flagged for a "delay of game" penalty? Whole Foods and Sirius got the deals they wanted, but their lengthy and traumatic paths toward mergerhood  have helped reduce them to horrendous investments.

I don't know whether Whole Foods has a case, or whether Sirius XM even has a basis for getting litigious at all. However, these two companies were clearly wronged by a system that dragged its feet to their detriment. Why should shareholders be the only ones to pay?

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Is Rick off his rocker, or is he making sense? Post your thoughts in the comment box below.

Wal-Mart Stores is a Motley Fool Inside Value selection. Whole Foods Market and GameStop are Stock Advisor recommendations. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is such a fan of satellite radio that he subscribes to both Sirius and XM. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 11, 2008, at 2:39 PM, securb38 wrote:

    Rick, You are so right on this question/suggestion!

    Have been wondering why there has been no suit. There had to be something behind the scenes with the Sirius/XM merger. It really seemed a "no-brainer".

    I hope some entity "follows the money" in an investigation.

  • Report this Comment On December 11, 2008, at 10:05 PM, steven107 wrote:

    Suing is a Luxury. Sirius can't spare the change.

  • Report this Comment On December 12, 2008, at 1:48 AM, keroyk wrote:

    What good would it do to sue when greedy people like Mel and the Board Cant and wont do any thing about it.

  • Report this Comment On December 12, 2008, at 10:29 AM, DMGambone wrote:

    I'm curious (in all seriousness). What does a lawsuit against the government agency really do? The company is already screwed because they (the politicians) dragged their feet.

    Will they get a boat load of money to cover the debt that is about to be due? Or is it simply a matter of principle? Please let me know.

  • Report this Comment On December 12, 2008, at 11:04 AM, weiwentg wrote:

    The Wild Oats acquisition wasn't exactly a huge one for Whole Foods. FTC persecution isn't the main cause of their poor performance this year: sharply reduced consumer spending is.

  • Report this Comment On December 12, 2008, at 1:19 PM, bookem71950 wrote:

    The Government is out of control. Companys they should put a stop too THEY WON'T and others they try to destroy with delays and allowing bigger companys to under price them out of the market . How is there a monopoly problem with RAD when all large grocery and deptment stores sell drugs??? I don't care if there is 4 RADs on the same intersection !!! there is still 4 other choices within 2 blocks if that is so!!! Just like Dendron the prostrate cancer vaccinne it works and is totally safe with just flu like systems and they WILL NOT LET IT ON THE MARKET. IF I OR MY FAMILY GOT THAT CANCER I WOULD GO STRIAGHT TO THE FDA AND TAKE SOME CROOKED POLITIONS OUT. WHY ARE THEY ALLOWED TO PLAY GOD. OH WE ALL FORGET ITS CALLED $$$$$$$$$$$. I PRAY THEY ALL GET IT AND CAN'T GET THE DRUG AND THEY SUFFER THE MOST PAINFULL DEATH WITH CHEMO AND RADIATION. It has even been proven that 2 of the Doc's on the board had conflict of interest and the FDA turned a blind eye to that!!!! The people of America are getting tired of all this .When will commonsense kick back in and politions get booted out?

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