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Whole Foods to acquire Wild Oats

Kristi Arellano, MediaNews Group Wire Service

After years of living in the shadow of its larger rival, Boulder, Colo.-based Wild Oats Markets Inc. has agreed to be acquired by Whole Foods Market Inc. in a deal valued at $700 million.

The Austin, Texas-based natural foods retailer said on Wednesday that it will pay $18.50 per share or $565 million for Wild Oats and will assume its outstanding debt. Whole Foods said it will borrow to fund the cash deal.

Shares of Wild Oats jumped more than 17 percent to $18.43 in after-hours trading. Wild Oats shares have ranged from $13.88 to $20.60 in the past year.

"It gives our stores and our business a chance to step up to a much greater level," said Wild Oats interim CEO Greg Mays. "Currently (Whole Foods is) the premier operator in the natural foods marketplace, and we have the good fortune of being associated with them now."

In a conference call with analysts following the announcement, Whole Foods CEO John Mackey said the deal allows Whole Foods to expand its presence throughout the country, particularly in the Rocky Mountain, Pacific Northwest and Florida markets, where it had a smaller number of stores.

Mackey hinted at the possibility of layoffs, noting that "there’s significant duplication in corporate overhead that can be eliminated." He said the company will likely close some underperforming or overlapping stores.

Whole Foods said it will evaluate whether to keep Wild Oats names on its stores, but will likely incorporate some Wild Oats private-label products into its business.

Retail experts said the combined companies will create a powerhouse that will dominate the natural foods market.

"It makes Whole Foods almost unstoppable in that natural-food category," said George Whalin, president of Retail Management Consultants in San Marcos, Calif.

The two companies were the largest players in the natural grocery sector, although both faced competition from mainstream grocers such as Safeway and Wal-Mart, which have increased their organic offerings. Whole Foods on Wednesday reported its first profit decline in five quarters.

Whole Foods operates 191 stores. Wild Oats has 110 locations and employs about 7,000 people, including 300 at its newly built corporate headquarters.

Wild Oats Rocky Mountain president Will Paradise said he is uncertain what will happen to that location.

Wild Oats also is opening a new prototype store — widely touted as its answer to Whole Food’s more theatrical format — in Boulder next month.

The deal is subject to approval by Wild Oats shareholders but not those of Whole Foods. The companies expect it to close by April. Whole Foods has completed 18 similar deals, but this is its largest acquisition.

In previous buyouts, Whole Foods has waited about three years before replacing the names of the stores it bought, said Burt P. Flickinger III, managing director of Strategic Resource Group, a New York business strategy consulting firm.

Because Wild Oats has been "undermanaged" and the brand doesn’t resonate as strongly with customers, he predicts that Whole Foods will move to change the name more quickly.

Wild Oats stores operate under the Wild Oats, Henry’s Farmers Market, Sun Harvest and Capers Community Market flags.

Flickinger said Wild Oats stores have suffered as company leaders focused more on cutting costs than on improving the store experience. He predicts that Whole Foods will upgrade the stores and has the muscle to increase sales by 50 to 70 percent at some stores within two years.

Mackey expressed similar confidence. "We plan to put jet propulsion on those stores," he said.

Wild Oats has long been viewed by analysts and customers as an also-ran, with smaller stores and less pizazz than Whole Foods. While the company had recently improved its operational performance, it has been dogged by rumors that it was a likely takeover target.

Those rumors gained momentum after Los Angeles investor Ron Burkle began increasing his stake in the company. Burkle is known as an industry dealmaker with a history of guiding big grocery buyouts. His interest in the company helped fuel a run-up in its stock price. Burkle’s company, which holds 17.3 percent of Wild Oats, has committed to supporting the deal.

What will happen to Park City’s store?

With the buyout of Wild Oats, Whole Foods Market will assess the additional stores around the country and possibly close some.

Until future notice, the status of the Park City store is unknown.

"It’s too soon to tell," said Amy Schaeffer, a spokeswoman for Whole Foods. "We will not merge until April. Wild Oats had stores in places that Whole foods did not. It’s just too soon to speculate."

After April, Schaeffer said Whole Foods will evaluate every store across the country.

"It’s going to take a long time to evaluate these stores," Schaeffer said. "We expect business as usual for at least the next few years. This is not an overnight process. We will work closely with Wild Oats leadership to see what we can learn from them."

Whole Foods expects to make significant investments in remodeling stores before eventually re-branding them as Whole Foods Market stores.

"There will be a lot of renovation," Schaeffer said. "We put a lot of capital into remodeling. We have a very different look and feel although we have similar products."

Many of the closures, Schaeffer said, will take place in past competing stores that were close to other Whole Foods locations.

Whole Foods does not have any stores in Utah, so it’s likely that the Park City store will remain, although there are no guarantees, she said, because they will "shed underperforming stores."

–Dan Bischoff, Park Record staff


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