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Whole Foods Market, Inc. Friday reached a settlement agreement resolving the Federal Trade Commission's antitrust challenge to its August 2007 acquisition of Wild Oats Markets, Inc., which includes the selling of 13 stores and the Wild oats brand.
"We have reached a mutually satisfactory agreement with the FTC," said John Mackey, chairman, CEO, and co-founder of Whole Foods. "We believe it was in the best interests of all our stakeholders to resolve this matter so we can dedicate our full attention to selling the highest-quality foods available in our inviting store environments. It will be business as usual in the 13 operating stores to be marketed for sale. We are committed to serving our shoppers by continuing to operate these stores in the manner our customers deserve and expect. We will be offering team members in stores that are sold the choice of either a guaranteed job offer in another store or an enhanced severance package."
In keeping with FTC protocol, the settlement agreement has been placed on public record for a 30-day comment period ending April 6, 2009, after which the FTC will issue a final ruling. Under the terms of the agreement, a third-party divestiture trustee has been appointed to sell:
--Leases and related assets for 19 nonoperating former Wild Oats stores, 10 of which were closed by Wild Oats prior to the merger and nine of which were closed by Whole Foods;
--Leases and related fixed assets (excluding inventory) for 12 operating acquired Wild Oats stores and one operating Whole Foods store; and
--Wild Oats trademarks and other intellectual property associated with the Wild Oats stores.
The divestiture trustee will have six months to market the assets to be divested. For any good-faith offers that aren't finalized by the divestiture trustee during the six-month period, an extension of up to six months may be granted. This 12-month period may be further extended to allow the FTC to approve any purchase agreements submitted within that time period.
Antitrust law expert Rebecca Nelson, a partner in St. Louis-based international law firm Bryan Cave LLP, says the settlement is a victory, of sorts, for both sides. "Here's a situation where the FTC can claim victory by giving consumers the Wild Oats brand, and requiring that stores that had been closed will potentially be reopened by a new owner," she said. "The FTC's win sets a precedent for future cases involving narrower specialty markets like the premium natural and organic supermarkets at issue in this case.
"At the same time," added Nelson, “Whole Foods keeps a majority of the stores it gained in the acquisition, which gives it many of the benefits it sought -- a broader footprint and improved economies of scale, for example."
After receiving final approval by the FTC, which is expected before April 30, 2009, Whole Foods expects to record a non-cash charge of up to about $19 million from the potential sale of the 13 operating stores, which had combined sales of about $31 million in the first quarter of fiscal year 2009, or about 1.3 percent of the retailer's total sales of $2.5 billion.
Whole Foods will incur some cash expenses relating to legal and trustee fees, which are not expected to be material. No material additional charges are expected related to the 19 closed properties, for which a lease liability reserve is already recorded, or related to the trademarks that have been fully amortized.