A US federal judge has backed Whole Foods Market's plan to buy rival retailer Wild Oats Markets after rejecting government claims that the deal would stifle competition.

The US District Court for the District of Columbia denied an attempt by the Federal Trade Commission (FTC) to block the US$565m deal between the two natural and organic foods retailers.

Barring an appeal by the FTC, Whole Foods will proceed with the deal on Monday (20 Aug). However, the regulator had earlier stated that it would appeal such a ruling.

In ruling against the FTC's request for a preliminary injunction to bar the sale, US District Judge Paul L. Friedman backed Whole Foods' contention that natural foods specialists are competing in the mainstream grocery market with large-scale supermarket operators like Wal-Mart, who have been expanding their offer significantly in the natural and organic food sectors.

Therefore, the contention that the merger of the two largest specialists be blocked on competition grounds was not considered valid.

Whole Foods has 197 stores in the US, Canada, and the UK, while Wild Oats has some 110 locations in 24 US states and Canada.

"The District Court's ruling affirms our belief that a merger between Whole Foods and Wild Oats is a winning scenario for all stakeholders," said John Mackey, Whole Foods co-founder, chairman and CEO. "We believe the synergies gained from this combination will create long term value for customers, vendors, and shareholders as well as exciting opportunities for team members."

Gregory Mays, chairman and CEO of Wild Oats Markets, added: "We always had confidence that, once presented with the facts, the judge would rule in favour of this merger. We continue to believe this merger is in the best interest of our stakeholders, as it will mean significant career opportunities for our store associates, capital investment in our stores to enhance the shopping experience for our customers, and value-creation for our shareholders. We look forward to closing the transaction."

Whole Foods and Wild Oats agreed with the FTC not to close the merger prior to noon, ET on 20 August. But if a stay pending appeal had not been requested by then, the companies said they would proceed to close the transaction at any point after midday on Monday.

In late trading yesterday (16 Aug), shares in Whole Foods leapt by $2.28, or 5.5%, to $43.45, following the ruling.

Whole Foods entered into a merger agreement with Wild Oats on 21 February, lodging a tender offer to purchase all of the outstanding shares of Wild Oats at $18.50 per share in cash.

In June, the FTC filed a suit in the federal district court to block the proposed acquisition on antitrust grounds, and sought a temporary restraining order and preliminary injunction pending a trial on the merits of the case.

Whole Foods has repeatedly extended the expiration date for its offer, most recently to 5:00pm, ET on 20 August.