[Federal Register Volume 74, Number 48 (Friday, March 13, 2009)]
[Notices]
[Pages 10913-10916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-5519]


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FEDERAL TRADE COMMISSION

[Docket No. 9324]


Whole Foods Market, Inc.; Analysis of Agreement Containing 
Consent Orders to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the complaint and 
the terms of the consent order--embodied in the consent agreement--that 
would settle these allegations.

DATES: Comments must be received on or before April 6, 2009.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to``Whole Foods 
Market, Docket No. 9324'' to facilitate the organization of comments. 
Please note that your comment--including your name and your state--will 
be placed on the public record of this proceeding, including on the 
publicly accessible FTC website, at (http://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual's Social Security 
Number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential. . . .,'' as provided in 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 
4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing material for which 
confidential treatment is requested must be filed in paper form, must 
be clearly labeled ``Confidential,'' and must comply with FTC Rule 
4.9(c).\1\
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    \1\ FTC Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See FTC Rule 4.9(c), 16 CFR 4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted by using the following weblink: (https://secure.commentworks.com/ftc-WholeFoodsMarket) (and following the 
instructions on the web-based form). To ensure that the Commission 
considers

[[Page 10914]]

an electronic comment, you must file it on the web-based form at the 
weblink:(https://secure.commentworks.com/ftc-WholeFoodsMarket). If this 
Notice appears at (http://www.regulations.gov/search/index.jsp), you 
may also file an electronic comment through that website. The 
Commission will consider all comments that regulations.gov forwards to 
it. You may also visit the FTC website at http://www.ftc.govto read the 
Notice and the news release describing it.
    A comment filed in paper form should include the ``Whole Foods 
Market, Inc., Docket No. 9324`` reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission, Office of the Secretary, Room H-135, 600 
Pennsylvania Avenue, NW, Washington, DC 20580. The FTC is requesting 
that any comment filed in paper form be sent by courier or overnight 
service, if possible, because U.S. postal mail in the Washington area 
and at the Commission is subject to delay due to heightened security 
precautions.
    The Federal Trade Commission Act (``FTC Act'') and other laws the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding as appropriate. The Commission will 
consider all timely and responsive public comments that it receives, 
whether filed in paper or electronic form. Comments received will be 
available to the public on the FTC website, to the extent practicable, 
at (http://www.ftc.gov/os/publiccomments.shtm). As a matter of 
discretion, the Commission makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC website. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).

FOR FURTHER INFORMATION CONTACT: Albert Y. Kim, Bureau of Competition, 
600 Pennsylvania Avenue, NW, Washington, D.C. 20580, (202) 326-2952.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  3.25(f) 
the Commission Rules of Practice, 16 CFR 3.25(f), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of thirty (30) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for March 6, 2009), on the World Wide Web, at (http://www.ftc.gov/os/2009/03/index.htm). A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington, 
D.C. 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order to Aid Public Comment

I. INTRODUCTION

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Whole Foods Market, Inc. (``Whole Foods''). The 
purpose of the proposed Consent Agreement is to remedy the competitive 
harm resulting from Whole Foods' acquisition of Wild Oats Markets, Inc. 
(``Wild Oats''), completed on or about August 28, 2007. Under the terms 
of the proposed Consent Agreement, Whole Foods is required to maintain 
and subsequently divest a significant portion of the Wild Oats assets 
at issue in this matter.
    The proposed Consent Agreement has been placed on the public record 
for thirty days to solicit comments from interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission again will review the proposed 
Consent Agreement and the comments received, and decide whether it 
should withdraw the Consent Agreement or make it final.
    The sole purpose of this analysis is to facilitate public comment 
on the Consent Agreement; it is not intended to constitute an official 
interpretation of the Consent Agreement or modify its terms in any way.

II. BACKGROUND

    On February 21, 2007, Whole Foods and Wild Oats publicly announced 
that they had executed a merger agreement pursuant to which Whole Foods 
would acquire Wild Oats in a transaction valued at about $700 million. 
At the time of the merger announcement, Whole Foods (headquartered in 
Austin, Texas) and Wild Oats (headquartered in Boulder, Colorado) were 
the only national operators of premium natural and organic supermarkets 
(``PNOS'') in the United States. Whole Foods operated 194 stores in 
more than 37 states and the District of Columbia as well as the United 
Kingdom, and Wild Oats maintained 74 PNOS stores in 24 states.\2\
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    \2\ Wild Oats also operated stores under the Henry's Farmers 
Market banner (in Southern California), the Sun Harvest banner (in 
Texas), and the Capers Community Market banner (in British Columbia, 
Canada).
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    Wild Oats and Whole Foods offered a unique selection of natural and 
organic products, amenities, and high levels of customer service that 
differentiated them from conventional supermarkets, mass merchants, and 
other categories of food retailers. The combination of Whole Foods and 
Wild Oats would provide Whole Foods with market power post-acquisition 
in the PNOS market, leading to significant anticompetitive effects. 
Staff's investigation confirmed that repositioning by existing 
competitors or new entry would be inadequate to deter or counteract 
this harm to competition.
    Having reason to believe the proposed transaction would result in 
competitive harm, the Commission authorized staff to seek a temporary 
restraining order (``TRO'') and preliminary injunctive relief in 
federal district court and to commence an administrative trial under 
Part 3 of the Commission's Rules of Practice. Both the district court 
and administrative complaints alleged that the combined company would 
increase prices, and decrease the quality and number of offered 
services, if the merger were permitted to close.

III. LITIGATION HISTORY

    On June 6, 2007, the Commission filed an action in the U.S. 
District Court for the District of Columbia to seek a TRO and a 
preliminary injunction against the acquisition. The court granted the 
TRO on June 7, 2007. On June 28, 2007, the Commission issued an 
administrative complaint pursuant to Part 3 of its Rules. Given the 
proceedings in the collateral federal district court case, the 
Commission, as a matter of discretion, stayed the Part 3 action in an 
order issued on August 7, 2007.
    After a two-day hearing on July 31 and August 1, 2007, the district 
court denied the Commission's motion for a preliminary injunction on 
August 16, 2007. On August 17, 2007, the

[[Page 10915]]

Commission filed with the U.S. Court of Appeals for the D.C. Circuit a 
notice of appeal and an emergency motion for an injunction pending 
appeal. Although the D.C. Circuit initially denied the Commission's 
emergency motion for an injunction pending appeal, on July 29, 2008, 
the court of appeals reversed the district court's opinion and found 
that the Commission had demonstrated the requisite likelihood of 
success in the preliminary injunction proceeding, and remanded the 
matter to the district court to address the equities and, if necessary, 
fashion appropriate relief.\3\ Approximately one week later, on August 
8, 2008, the Commission lifted the stay of the Part 3 proceedings, and 
the Commission issued an amended administrative complaint on September 
8, 2008. The amended complaint alleged anticompetitive effects in 22 
overlap markets (in which Whole Foods and Wild Oats competed head-to-
head) and seven potential competition markets (in which Whole Foods had 
planned to enter but for the merger).
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    \3\ Following Whole Foods' August 26, 2008 petition for 
rehearing en banc in the court of appeals, the D.C. Circuit denied 
the petition and reissued the court's judgment on November 21, 2008. 
The two judges of the panel majority reissued opinions that 
reiterated their respective rationales for concluding that the 
Commission had carried its burden of showing a likelihood of success 
on the merits and that the district court should conduct an equities 
analysis to determine whether an injunction should issue.
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    On January 8, 2009, the district court issued a written order and 
opinion holding that the issue of likelihood of success had been fully 
resolved in the Commission's favor by the court of appeals, and 
confirming that all that remained was to weigh the equities and impose 
relief, if necessary.
    On January 26, 2009, Whole Foods filed a motion to withdraw the 
matter from administrative litigation, together with a settlement 
agreement. The Commission granted Whole Foods' motion on January 29, 
2009, and temporarily withdrew the matter from administrative 
adjudication. The withdrawal was subsequently extended until March 6, 
2009, as Whole Foods and Commission staff negotiated a remedy in 
settlement of the ongoing litigation.

IV. POST-ACQUISITION INTEGRATION

    The acquired Wild Oats assets included stores operating under the 
Wild Oats banner as well as a number of leases for Wild Oats stores 
that were closed prior to the acquisition.\4\ After the district 
court's August 16, 2007 decision denying the Commission's request for a 
preliminary injunction, Whole Foods consummated its acquisition of Wild 
Oats and began integrating certain of the acquired Wild Oats assets, 
rebranding Wild Oats stores, closing other Wild Oats locations, and 
terminating certain leases.
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    \4\ Immediately following the closing, on September, 30, 2007, 
Whole Foods sold the Henry's and Sun Harvest stores that Wild Oats 
had been operating to Smart & Final Inc., a Los Angeles-based food 
retailer.
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    In the 18 months since the close of the transaction, Whole Foods 
has closed a number of Wild Oats stores. Whole Foods has maintained 
leases and physical assets relating to some, but not all, of the closed 
Wild Oats locations. Within the 29 geographic markets alleged in the 
complaint, Whole Foods is currently operating 31 former Wild Oats 
stores and is maintaining control of 19 formerly operating Wild Oats 
stores.

V. THE PROPOSED CONSENT AGREEMENT

    In order to remedy, to a significant degree, the anticompetitive 
effects of the transaction, the Commission has entered into the 
attached Consent Agreement with Whole Foods, which requires the 
divestiture of 32 stores, along with associated Wild Oats intellectual 
property and related assets, leases, properties, and government 
permits.\5\ The Order to Maintain Assets will require Whole Foods to 
maintain the operating status of the open stores, and maintain all 
leases (open and dark stores) until divestiture is complete. See 
Appendix A.
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    \5\ Of the 32 stores, 13 are live stores and 19 are ``dark'' 
stores. Dark stores are former Wild Oats stores that are not 
presently operating, but are under the control of Whole Foods.
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    The inclusion of the Wild Oats intellectual property is an 
important component of the package. The intellectual property includes 
the use, without restriction, of the Wild Oats name. Even months after 
the acquisition, the Wild Oats brand name retains significant brand 
equity that has been developed over the past 20 years.
    As shown in Appendices A & B of the Decision and Order, Whole Foods 
is required to divest a significant portion of the acquired and 
currently operating stores, and all of the formerly operating stores 
for which leases still exist. These planned divestitures will offer 
relief in 17 of the 29 geographic markets alleged in the amended 
administrative complaint, eliminating Whole Foods' monopoly position in 
these markets, and permitting consumers to once again enjoy the 
benefits of competition between PNOS operators. These stores also could 
provide a springboard from which the acquirer(s) can expand into 
additional geographic markets.
    The proposed order provides that the responsibility for the 
marketing and sale of the assets to be divested will immediately be put 
in the hands of the divestiture trustee.\6\ The trustee will have six 
months within which to divest the stores and related assets to a buyer 
or buyers approved by the Commission. If the trustee has received good 
faith offers from potential acquirers for certain stores within the 
initial six-month divestiture period, the Commission may extend the 
divestiture period for those stores for up to an additional six months. 
The requirement that any potential acquirer be approved by the 
Commission is designed to ensure that the potential acquirer(s) intends 
to put the divested assets, including the stores and the Wild Oats 
brand, to use in the relevant product market in competition with Whole 
Foods.
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    \6\ Pursuant to the proposed Consent Agreement, although the 
divestiture of the stores may be made to one or more Commission-
approved buyers, the Wild Oats-associated intellectual property may 
be divested to only a single buyer.
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VI. OTHER PROVISIONS OF THE CONSENT AGREEMENT

    The Consent Agreement contains several additional provisions 
designed to ensure that competition is, in fact, replicated in the 
targeted geographic markets. As referenced above, the Consent Agreement 
requires appointment of a divestiture trustee to oversee the process 
for divesting the Wild Oats assets. The Food Partners (``TFP'') has 
been appointed to fill this role. TFP is one of the leading investment 
banking firms in the food retailing industry, with particular expertise 
in mergers, acquisition, and divestiture services. TFP has advised on a 
number of supermarket sales and acquisitions, including divesting 
packages of geographically dispersed national chain supermarkets. For 
these reasons, TFP is well-suited to serve as divestiture trustee in 
this matter.
    The Consent Agreement also includes an Order to Maintain Assets 
(``OMA''), which requires Whole Foods to continue to operate the Wild 
Oats stores until a buyer is identified and approved by the Commission 
and final closing of the purchase occurs. Because of concerns about 
possible deterioration of the stores during the divestiture period, the 
OMA further provides for the appointment of an interim monitor to 
ensure that Whole Foods maintains the viability, marketability, and 
competitiveness of the assets and does

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not terminate the operation of any store included in the divestiture 
package.

VII. POST-CONSUMMATION RELIEF

    The absence of pre-consummation relief from the district court, and 
Whole Foods' subsequent integration activities, have made it more 
difficult for the Commission to obtain complete relief in this matter. 
However, the proposed Consent Agreement will provide substantial relief 
to consumers in 17 geographic markets across the United States. 
Moreover, acceptance of the proposed Consent Agreement will bring 
immediate, certain relief and avoid the expense and uncertainty 
inherent in continued litigation. Reestablishing a PNOS competitor in 
these markets under the Wild Oats banner will reintroduce direct price, 
quality, and service competition in these areas, restoring to a 
substantial degree the competition that was eliminated by the 
acquisition, providing important benefits to consumers, and perhaps 
creating a springboard for broader competition nationwide.
    By direction of the Commission.

Donald S. Clark
Secretary
[FR Doc. E9-5519 Filed 3-12-09: 8:45 am]
[BILLING CODE 6750-01-S]