Whole Foods Completes Wild Oats Purchase

AUSTIN, Texas—Whole Foods Market Inc. (NASDAQ: WFMI) bought 96.8 percent of outstanding shares of Wild Oats Markets Inc. (NASDAQ: OATS) via tender offer at $18.50 per share, including more than 25,175,997 shares of OATS common stock and an additional 3,795,973 shares subject to guaranteed delivery. Whole Foods also assumed existing debt, net of cash, totaling approximately $137 million; the company entered into a five-year $700 million senior term loan agreement to fund the transaction, in addition to signing a new five-year $250 million revolving credit agreement, which will replace its existing $200 million revolver.

FTC fought throughout the summer to block the takeover, delaying WFMI’s tender offer several times, but the U.S. Court of Appeals in District of Columbia in mid-August denied an FTC request to delay the sale while the agency appealed a lower-court ruling. While acknowledging the agency raised interesting questions about the merger, it failed to an appeal could be won. In fact, countering FTC’s contention the merger would violate antitrust laws and squash competition in the niche food segment, U.S. District Judge Paul L. Friedman stated about 60 percent of natural and organic foods are sold at conventional stores.

"We are pleased with the successful outcome of this merger and look forward to working with Whole Foods to make this a smooth transition," said Gregory Mays, chairman and CEO of Wild Oats Markets.

While stating the closing this merger has taken longer than anticipated, John Mackey, chairman, CEO and co-founder of Whole Foods Market, said the integration process now begins. “We have found it generally takes up to two years to transition to our decentralized operations and implement our incentive programs,” he said. “We expect this acquisition to be similar and that over time we will recognize significant synergies through general and administrative cost reductions, greater purchasing power, increased utilization of our facilities and new team member talent.”

With the acquisition, Whole Foods now operates as Whole Foods Markets, Wild Oats Marketplace, Henry's Farmers Market (Southern California), Sun Harvest (Texas) and Capers Community Market (British Columbia). The company is slated to sell all 35 Henry's and Sun Harvest stores and a Riverside, Calif., distribution center to a wholly owned subsidiary of Smart & Final Inc., a Los Angeles-based food retailer, in a transaction expected to close by late September.

Immediately following the close of its tender offer, Whole Foods reported its short- and long-term plans for the Whole Foods Market and Wild Oats Markets stores in Boulder, Colo., and throughout the Rocky Mountain region that spans Colorado, New Mexico, Kansas, Utah, Idaho and into Missouri.

The company said by experimenting with new store formats and concepts, and by re-tooling and investing in capital improvements in existing stores, all Whole Foods Market and Wild Oats Markets stores in Boulder will remain open. Among its experiments are plans to use the newly acquired Baseline Road location near the University of Colorado for a new experimental concept called "Whole Foods Market Express, featuring a "value-oriented product mix, grab-and-go offerings.” It also plans to renovate and expand its Pearl Street location, hoping to add more than 200 jobs by 2010, and further stated retail square footage in Boulder for natural foods supermarkets will actually increase from pre-merger levels. In addition to these changes, the company said a few longtime local retail favorites, such as Ideal Market and Alfalfa's Market, will be preserved and renewed, respectively. Whole Foods also said it will permanently lower prices at all 23 Wild Oats Market locations in the Rocky Mountain region to keep store pricing consistent.

The company made no other announcements regarding the status of Wild Oats stores in other Whole Foods Market regions. Will Paradise, president of Whole Foods Market Rocky Mountain Region, said decisions regarding the Boulder area stores were a priority because it is the hometown of Wild Oats Markets.

Among the detailed plans announced for specific Rocky Mountain Region locations:

Whole Foods Market signed the lease for expanding space of its Pearl Street store into the current Barnes & Noble location, for what will be a 73,000-sq.-ft. Whole Foods Market location, making it the largest store in Colorado and one of the largest stores in the company. With a targeted opening date in late-2010, the expanded store will employ 500 team members representing more than 200 additional jobs. A North Boulder neighborhood favorite, Ideal Market (14,000 sq. ft.), will remain true to its 65-year heritage in Boulder and continue operations as Ideal Market, under Whole Foods Market leadership. The company said it intends to invest in significant upgrades to the store—the distinct flavor and personality of Ideal Market will be preserved, but over time, the store's product mix will be harmonized with quality standards consistent to Whole Foods Market.

The Broadway and Arapahoe store's (21,500 sq. ft.) design will be updated, while returning this historic grocery store to its roots as Alfalfa's Market. This decision is a tribute to a retailer Whole Foods Market believes was one of the early pioneers of natural grocery in the United States and at one time was the number one natural foods retail location in the country.

The Baseline Road Wild Oats Markets (18,500 sq. ft.) store will be converted to an entirely new experimental concept for Whole Foods Market entitled "Whole Foods Market Express." This new convenience-focused concept for the company will offer a value-oriented product mix, grab-and-go offerings, and will be a practical fit for its neighborhood, especially with the high concentration of students from nearby University of Colorado. The company said it views this new "Express" concept as the type of innovation that is especially true to Boulder's natural and organic products industry roots.

The Wild Oats Markets' location in Superior (32,500 sq. ft.) will undergo slight renovation and will eventually change its name to Whole Foods Market.

The 29th Street Wild Oats Markets' location will not be opened, and Whole Foods Market will sub-lease or sell the retail space to a non-food business.

Whole Foods Market has announced that it will permanently lower prices at all 23 Wild Oats Market locations in the Rocky Mountain region so that store pricing is consistent. The lower prices will be kicked off in the next few weeks with a 10-percent-off weekend at all Wild Oats locations in the region