WHOLE FOODS/WILD OATS MERGER: sowing the seeds for market growth

1. WHOLE FOODS/WILD OATS MERGER: sowing the seeds for market growth

2. company history • Founded by CEO John Mackey • Opened doors in September 1980 • “The world’s leading organic and natural foods retailer” - produce - meat and poultry - seafood - grocery - bakery - prepared foods - beer - wine - cheese - body care - pet products - nutritional supplements - floral - household products - alternative pharmacy • 2007: #5 in Fortune’s “100 Best Companies to Work For” • Today: 270 stores throughout the United States, Canada and the U.K.

3. growth strategy • To expand through a combination of new-store openings and acquisitions of existing stores:

4. a company with a mission • Core Values • Selling the highest quality natural and organic products available • Satisfying and delighting our customers • Supporting team member happiness and excellence • Creating wealth through profits and growth • Caring about our communities and our environment • Creating ongoing win-win partnerships with our suppliers • “Declaration of Interdependence” • Philanthropy • The Whole Planet Foundation • Community giving • Eco-consciousness

5. competition & consumers • Competitive businesses • Natural foods supermarkets (Trader Joe’s) • Conventional and specialty supermarkets (Safeway, Kroger, SuperValu, Stop & Shop) • Super center grocery stores (Wal-Mart, Target) • General consumer demographic: • Eco-friendly • Wealthy • Educated

6. merger & acquisition law • The Sherman Antitrust Act (1890) • “every contract, combination or conspiracy in restraint of trade” • The Clayton Antitrust Act (1914) • Protection against price discrimination, tying contracts, interlocking directorates and allowing board members to acquire stock in competing firms • The Federal Trade Commission Act (1914) • The Hart-Scott-Rodino Antitrust Improvements Act (1976) • Premerger Notification Program: gave federal government authority to dissolve mergers prior to an agreement

7. the merger & the FTC • Reasons for merging • The FTC steps in • Why? In an email to the Board of Directors, Mackey wrote: “OATS remains a relevant competitor. By buying them we will greatly enhance our comps over the next few years and will avoid nasty price wars in Portland (both Oregon and Maine), Boulder, Nashville, and several other cities which will harm our gross margins and profitability. OATS may not be able to defeat us but they can still hurt us. Furthermore we eliminate forever the possibility of Kroger, SuperValu, or Safeway using their brand equity to launch a competing national natural/organic food chain to rival us.”

8. the FTC’s case against whole foods • Violation of Section 7 of the Clayton Act • Prohibits the acquisition of another company “...where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition…or tend to create a monopoly of any line of commerce” • Violation of Section 5 of the FTC Act • Protects against “unfair methods of competition” • Filed temporary restraining order against Whole Foods blocking the merger with Wild Oats

9. whole foods’ response • Legal filing • Admitted to the language quoted by the FTC but denied all other allegations • Weblog • Posted updated information on the CEO’s Blog • Intended to maintain transparency • Allowed readers to post comments and questions • News releases • Provided continuous developments in the case

10. the plot thickens: forum scandal • Mackey’s alter-ego • Posted on Yahoo! Finance message boards for eight years under the alias ‘rahodeb’ • Known as ‘the Whole Foods cheerleader’ • Sock-puppeting • the act of creating a fake online identity to praise, defend or create the illusion of support for one’s self, allies or company • SEC launches investigation to ensure Mackey didn’t reveal private company information • Mackey suspends his own blog

11. public & media response • Discussion of ethics in the news • Controversy in the blogosphere • Apparent lack of criticism in mainstream media coverage • Media declared it “forgivable”

12. one year later: “back to blogging” • May 2008: SEC investigation concluded and Mackey was cleared of any allegations • The CEO’s Blog resumed with a post explaining the reasons for his actions. Topics included: • Why post online? • Why a screen name? • Clearing up the confusion • Key lessons • Moving on

13. aftermath • August 16, 2007: U.S. District Court overturned the FTC’s movement to block the merger • Whole Foods Market acquired Wild Oats for $565 million • Gained immediate entry into new markets • Increase in sales • July 2008: initiated the “Whole Deal” program • December 2008: latest developments

14. relevant theories • Grunig’s Four Models of Public Relations • Publicity • Public information • One-way asymmetrical • Two-way symmetrical • Dominant Coalition • Transparency & the Ethical Decision-Making Process

15. food for thought 1. With your own knowledge of ethical standards in public relations and your own principles, decide whether or not Mackey’s behavior was unethical. Why or why not? 2. How could Whole Foods have better utilized the Page Principles to solve either of its business problems? 3. Would the ethical issue behind Mackey’s sock-puppeting affect your decision to work for this company? 4. Why do you think Whole Foods' board of directors kept Mackey in his current position? 5. Do you feel that the general public (via blogs, word of mouth, etc.) helped or hindered the acquisition? 6. Why do you think there was little outrage over Mackey’s sock-puppeting – either in the media or from customers and investors? 7. Discuss the role of reputation when organizations face challenges or crises.

16. thank you Comments? Questions?