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Rick Dumas-Eymard, Nov 07, 2007
A little over two months ago, the U.S. Federal Trade Commission’s (FTC) challenge of the acquisition by natural and organic foods retailer Whole Foods of its rival Wild Oats seemed all but dead in the water. On August 16, 2007 the United States District Court for the District of Columbia denied the FTC’s request for a preliminary injunction against the merger. While the FTC immediately appealed the decision, the U.S. Court of Appeals for the District of Columbia found that the Commission had failed to make a strong showing that it was likely to prevail on the merits of its appeal and allowed the parties to close their merger, which they did on August 28. Yet, to the surprise of most observers, the FTC is not showing any signs of letting up its fight against the grocery stores’ combination. On October 22, 2007, it opposed a motion by Whole Foods to dismiss the Commission’s appeal as moot. Yet the FTC’s path seems rife with hurdles. Unraveling a completed merger can be technically challenging and the Commission is generally reluctant to force parties to undo a transaction that is already closed. In addition the Court of Appeals’ refusal to enjoin the merger during the pendency of the appeal strongly signals that it believes the District Court’s ruling was correct and should stand. Why then is the Commission pursuing an appeal that is widely viewed as a long shot? Its motivations are likely twofold. First, from a procedural standpoint, the Commission wishes to preserve its prerogatives as having primary initial responsibility for deciding the legality of mergers under the antitrust laws. Second, from a substantive point of view, it hopes to contain the risk that courts will use this case as precedent to define retail markets broadly, and thereby, restrict the Commission’s ability to challenge mergers between retailers in the future.