Wednesday, June 06, 2007

It must be April Fools Day…

That was my first thought upon reading my Wall Street Journal this morning, specifically the story on page A3, entitled “FTC Deals Setback to Whole Foods”. But I checked, and my WSJ is definitely dated June 6, 2007. So there must be another explanation.

It seems that our esteemed Federal Trade Commission has decided to block Whole Foods Markets Inc (WFMI) $565 million acquisition of Wild Oats Markets (OATS). Apparently the FTC is very concerned that the new entity will monopolize wheat germ, organic produce, tofu, and you name any of the other healthy products these stores sell. Wow, thanks FTC, for trying to protect us. I can’t imagine how tyrannical this newly formed entity would be, forcing the poor, healthy consumer to shell out many times the going rate for grass-fed beef, and buckwheat pancake mix.

To think that this acquisition could create a health food monopoly detrimental to the consumer is utterly ridiculous. FTC, we still operate in a free market, and with relatively low barriers to entry, a successful monopoly in this area would be highly unlikely.

To make matters worse, here is a quote from Jeffrey Schmidt, Director of the FTC’s Bureau of Competition, printed in the Journal article:

“If Whole Foods is allowed to devour Wild Oats, it will mean higher prices, reduced quality, and fewer choices for consumers. That is a deal consumers should not be required to swallow.”

Are you kidding me? That’s the same kind of flawed logic, and misinformed view of free market economics that stopped the proposed Staples-Office Depot merger from occurring several years ago. Thank goodness the FTC put a stop to that merger. We’d no doubt have pencil and pen shortages if that deal had been blessed.

Perhaps Mr. Schmidt and company at the FTC need to bone up on the intensely competitive and low margin retail food market (WFMI's net profit margin was a whopping 3.6% in 2006; OATS had a net loss), or better yet, free market economics. To that end, I’d suggest spending a few hours with my former economics Professor, Dr. Hans Sennholz. He’d set them straight in short order.

I’ve never been to a Whole Foods store, and I‘ve never been to a Wild Oats store. I’ve never evaluated or owned stock in either company, and lets face it, I’m not the poster child for healthy eating. But I can spot the flawed logic in this decision from a mile way. FTC, spend your time (and our tax dollars) on something worthwhile.

*The author does not have a position in any of the stocks mentioned in this report. This is neither a recommendation to buy or sell these securities. All information provided believed to be reliable and presented for information purposes only.

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