Natural Foods Merchandiser

Whole Foods buys Wild Oats

BOULDER, Colo., Feb. 21, 2007—Wild Oats Markets agreed today to be acquired by its chief rival, Austin, Texas-based Whole Foods Market Inc. Whole Foods said it would pay $18.50 per share, or approximately $565 million, for Wild Oats and assume Wild Oats' existing debt of $106 million. The deal is expected to close in April.

Wild Oats and Whole Foods pioneered the concept of a large supermarket-style format for retailing natural and organic products. Wild Oats was founded in Boulder, Colo., in 1987 by Mike Gilliland. In the past 20 years, it grew to operate 110 stores under four banners in 24 states and British Columbia, with annual sales of $1.2 billion. Whole Foods, founded by John Mackey in Austin, Texas, in 1980, is now the nation's largest natural and organic foods retailer, with annual sales last year of $5.6 billion and 191 stores in the United States, Canada and the United Kingdom.

In the last few years, Wild Oats was often described as beleaguered. Sales and share prices dropped as the chain struggled to compete with Whole Foods and even conventional retailers.

Rumors had been swirling for months that Wild Oats was an acquisition target, with Yucaipa Companies—Wild Oats' largest shareholder, with 18 percent ownership—often cited as a likely buyer. Kevin Coupe, a retail analyst who writes the e-newsletter, said he was a little surprised to learn that Whole Foods was ultimately the buyer. "They've been having their own problems lately, in terms of same-store sales and their growth not being what they wanted it to be. It may speak to the fact that organic growth, if you will, is not going to be what they want it to be," and an acquisition of this size is Whole Foods' best bet now, he said.

In a published statement, Mackey, now Whole Foods' chief executive, confirmed that, and said this represents the company's largest acquisition. "The growth opportunity in this category has led to increased competition from many players, most of whom are not dedicated natural and organic foods supermarkets, but are considerably larger than we are. We have made 18 retail acquisitions in our history ? from which we have been able to accelerate our growth geographically. Wild Oats Markets will be our largest acquisition and is a great geographical fit, as all of our 11 operating regions will gain stores and three of our smallest regions—our Pacific Northwest, Rocky Mountain and Florida regions—will gain critical mass. We will also gain immediate access into a significant number of new markets."

According to the statement, Whole Foods "will be evaluating each [Wild Oats] banner as well as each store to see how it fits into its overall brand and real estate strategy."

Coupe noted that so far, "Everything that Whole Foods operates is under the Whole Foods name." But, he noted, "That may have more to do with location than anything else." The Whole Foods statement noted that "some additional store closures are expected, as well as the relocation of some stores that overlap with stores Whole Foods Market currently has in development."

A Wild Oats spokeswoman was unable to provide details about the fate of its new flagship store in the Twenty Ninth Street shopping center in Boulder, Colo. The store, initially slated to open in late March, was expected to have an adjacent organic wine shop.

Coupe said the merger's effects would be mixed. "It's hard to imagine it's good for the organic and natural foods arena because instead of having a strong competition between these two players, you're down to one player and a lot of independents and the mainstream stores. Quite frankly, consumers are going to have less choice." However, he said consumers might see improved quality. "Whole Foods was always the superior operator; in the places where they can bring Wild Oats [stores] up to standards, it's a positive for consumers."

In 2001, Wild Oats hired Perry Odak, a so-called turnaround specialist, as CEO to position the company for sale, but Odak left the company late last year when he and the board of directors were unable to reach an agreement on a contract extension. "It's sort of ironic that [the acquisition] happens after he leaves," Coupe said.

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