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Shares of Whole Foods gained 8.59% to close at $40.22 in AH trading and Wild Oats gained nearly 4% to $16.10 in regular trading Tuesday as the companies took their case for a merger to federal court. Whole Foods also reported Q3 earnings Tuesday that slightly exceeded expectations, though revenue came in below forecasts. The FTC will present evidence to U.S. District Court that the proposed Whole Foods/Wild Oats merger is anti-competitive. That evidence includes an email Whole Foods CEO John Mackey sent to executives of the company stating the merger would help Whole Foods avoid "nasty" price wars and effectively bar competitors from entering the natural foods space. Whole Foods economist David Scheffman told the FTC that despite Mackey's comments, the deal would not thwart competition. If the court grants a preliminary injunction, the parties will likely drop the merger, but if it does not, the FTC might drop the case, according to antitrust lawyer Bruce WFMI 01 08 2007 Chart OATS 01 08 2007 ChartMcDonald. The decision is expected by mid-August. Whole Foods' fiscal Q3 profit fell to $49.1 million ($0.35/share) from $53.9 million ($0.37) a year ago, ahead of analyst expectations of $0.33. Sales were up to $1.51 billion from $1.34 billion, shy of Street forecasts of $1.54 billion. Same-store sales were up 7%.

Sources: Reuters, MarketWatch I, II, Dow Jones I, II
Commentary: FTC Case Strong Against Whole Foods/Wild Oats Merger -- AnalystWhole Foods: Don't Let Controversy Cloud JudgementFTC: Whole Foods-Wild Oats Merger Would Thwart Competition
Stocks/ETFs to watch: WFMI, OATS. Competitors: KR, SVU, SWY. ETFs: XLP, VDC, PSL
Earnings call transcripts: Whole Foods Market F3Q07

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Source: Whole Foods-Wild Oats Merger Goes Before Court