Court revives US case against organic grocer merger

By Peter Kaplan

WASHINGTON (Reuters) - A U.S. appeals court on Tuesday revived a government antitrust case against Whole Foods Market Inc's (WFMI.O) purchase of rival Wild Oats Markets Inc, reversing a lower court decision that allowed the deal to proceed.

The U.S. Court of Appeals for the District of Columbia said a district court judge erred when he turned down a Federal Trade Commission request for an injunction to block the deal.

U.S. District Judge Paul Friedman "underestimated the FTC's likelihood of success on the merits" when he denied the agency's request, the three-judge appeals court panel said in its ruling. One of the judges dissented from the opinion.

The appeals court remanded the case back to Friedman for further proceedings.

Whole Foods issued a statement saying it was disappointed by the decision and could seek a review by the full appeals court. Meanwhile, it would carry on "business as usual."

Whole Foods shares fell about 1.5 percent after the ruling was issued Tuesday morning to $22.32 from $22.67. But in afternoon trading on Nasdaq they were up 1.9 percent to $22.45 from Monday's close.

Rating agency Standard & Poor's said in a statement it did not see the ruling changing Whole Foods' daily operations or its continued integration of Wild Oats stores. Wild Oats had been effectively "deconstructed" since the acquisition, it said, with store divestments, closures and rebrandings.

Whole Foods first announced its plan to buy smaller rival Wild Oats in February 2007. The FTC sued to block the $565 million deal in June 2007, saying it would hobble competition in the market for natural and organic groceries.