Federal regulators on Friday appealed a court ruling that allowed Whole Foods Market WFMI to purchase its rival organic grocer Wild Oats Markets OATS.
The Federal Trade Commission has also asked the U.S. District Court for the District of Columbia to delay the closing of the deal pending the outcome of the appeal.
The FTC is seeking to block the $565 million acquisition, arguing that it would stifle competition and lead to higher prices in the premium organic food market. The companies say the deal won't hurt consumers because they also compete with conventional supermarkets such as Safeway and Kroger, which are selling increasing amounts of organic products.
U.S. District Judge Paul Friedman rejected the FTC's arguments in a ruling late Thursday and denied the agency's request to block the transaction.
Whole Foods said Thursday it agreed with the FTC's request not to close the transaction before Aug. 20. The companies may complete the acquisition after that date if no delay has been granted, Whole Foods said.
Paul T. Denis, Whole Foods' lawyer, said the company has reviewed Friedman's 93-page decision, which remains under seal until next week because it includes trade secrets.
"The opinion is firmly grounded in both the facts and the law," Denis said in a statement. "We are confident that the merger will be allowed to proceed."
David Balto, an antitrust attorney and former FTC official, said the agency has had some success in the past in appealing antitrust cases. Balto filed court papers in opposition to the acquisition on behalf of the Consumer Federation of America.
Several years ago, the agency sought to block H.J. Heinz's acquisition of baby food maker Beech-Nut and lost at the district court level. But an appeals court reversed that decision in 2001 and granted an injunction halting the deal, Balto said.
This year, the FTC has also appealed a court decision denying its request to block the sale of two utilities owned by Dominion Resources to Equitable Resources. That appeal isn't expected to be resolved until next month at the earliest.
Clifford Aronson, an attorney for Boulder, Colo.-based Wild Oats, read Friedman's decision and said the judge rejected the government's argument that the two chains competed mostly with each other, rather than conventional supermarkets, and could raise prices if they combined.
Aronson also said that Friedman made no mention of one notorious aspect of the case: Whole Foods chief executive John Mackey was revealed to have trashed Wild Oats and touted Whole Foods on Internet message boards under a pseudonym. Federal securities regulators are looking into the postings.
The Whole Foods decision is the latest in a series of losses for the federal government on antitrust cases. The Justice Department failed in its effort to block Oracle's acquisition of PeopleSoft in 2004 and the FTC was thwarted in its bid to block Western Refining's purchase of fellow gas refiner Giant Industries earlier this year.
Bruce McDonald, an attorney at Jones Day and former antitrust official at Justice, said Friedman's ruling is "an unfortunate setback" for federal antitrust agencies.
"If it starts to look like the government can never win, that emboldens companies to try mergers that they otherwise wouldn't," he said.
Shares of Whole Foods jumped $2.82, or 6.9%, to $43.99, while Wild Oats shares rose $2.73, or 18%, to $17.94 in afternoon trading Friday.