It is now over a year since Whole Foods Market 'completed' its acquisition of rival chain Wild Oats Markets, and it has been a long year, too. The retailer's commercial fortunes have ebbed, writes Ben Cooper, while the Federal Trade Commission has remained resolute in its attempt to block the Wild Oats deal.

For those who find the legal processes that accompany corporate mergers tortuously complex and baffling, the progress of the Whole Foods Market (WFM) acquisition of Wild Oats Markets will have been excruciating and captivating in virtually equal measure.

The first thing to say about this deal is that it has not been completed, not to the full satisfaction of the law at least. Even though it is more than a year since WFM announced it had completed the acquisition, the Wild Oats shareholders have received their considerations and Wild Oats stores have been closed by their new 'owners', legal proceedings could yet block the merger.

In fact, such is the complexity of this particular case that there are two possible ways in which WFM could be forced to unravel the deal. When WFM launched its US$565m takeover bid for rival natural goods retailer Wild Oats in February 2007, the Federal Trade Commission (FTC) immediately took a keen interest in the case. Indeed, the offer period was extended as the FTC sought more information on the impact of the merger, arguably a portent of the FTC's ongoing attitude towards the case.

The FTC then sought to have the deal blocked on competition grounds, seeking a preliminary injunction with the US District Court for the District of Columbia. The case rested on how the market is defined. The FTC claimed that WFM would have an excessively dominant share of the specialist natural and health foods sector, while WFM claims it is in competition with major supermarket chains that also sell many such good-for-you products.

However, in August 2007, the District Court ruled against the FTC's petition, effectively giving WFM the green light, barring an appeal by the FTC. The FTC duly lodged its appeal and requested a stay on the closure of the deal until that appeal was heard. However, that stay was not granted and the merger went through in that same month.

With the FTC having failed to gain that stay, it was thought it would drop its appeal but it did not. And in July of this year, the Court of Appeals ruled that the original judge in the District Court had made an error in allowing the deal to go ahead. It has now referred that case back to the District Court for further scrutiny. It also rejected WFM's argument that the FTC could not unravel a merger that had already proceeded.

This, in truth, was never likely to fly as WFM was fully aware at the time that as long as the appeal was pending, the deal was not technically approved.  "It [the completion of the deal] was always subject to the risk that that denial of a preliminary injunction could be reversed by a Court of Appeals," says Andrew Klevorn, a partner with the Chicago law firm Eimer Stahl Klevorn & Solberg and an expert in anti-trust law. "The parties always were operating with the risk that there was the potential that they might have to unscramble the assets subject to the appeal."

However, Klevorn was surprised when the Court of Appeals ruled in the FTC's favour. "I must say that when the Court of Appeals denied the FTC's request for a stay pending their appeal I thought the likelihood of the Court of Appeals actually reversing the preliminary injunction was pretty remote," Klevorn tells just-food.

So, in essence, when deciding to go ahead, WFM was gambling on the FTC not being successful, and backing its own judgment of the competition issues concerned. Some may venture that there was an element of brinkmanship involved too, not least given the reputation of WFM CEO John Mackey as a colourful and charismatic entrepreneur.

But, as Klevorn also points out, there is always an element of risk when any merger is challenged by the FTC because, completely separate from any court decisions, it can order its own administrative proceedings on a takeover. Indeed, this is now exactly what the FTC is doing with regard to the WFM/Wild Oats deal, which could theoretically block the transaction even if the original court judgment is upheld. The upshot of all this is that a deal that looked done and dusted more than 12 months ago could yet, in theory, be blocked.

As dramatic as that sounds, it is rather unlikely to happen. Klevorn believes it is very likely that the FTC and WFM are currently negotiating some sort of settlement, whereby localised competition issues would be addressed by the retailer, and the FTC would desist in its persistent attempts to have the deal blocked. "I would be surprised if Whole Foods is not trying to reach some sort of accommodation with the FTC right now," Klevorn says.

Such negotiations will be highly secret and the first the public, or more importantly the market, would be likely officially to hear of them would be when WFM announces it is making the necessary concessions. It has to be said that this would be a somewhat anti-climactic end to this saga, which has now gone on for some 20 months and counting.

Throughout this time, the story has seldom disappointed observers. In itself, the battle between the charismatic John Mackey and the most dogged of watchdogs pursuing its case relentlessly cannot have failed to capture the imagination. Add to the mix some unexpected twists and turns, not least the accidental disclosure of confidential information by the FTC last year, and controversy over some colourful postings made in the past by Mackey about Wild Oats in his blog, and this becomes far more than a protracted legal battle about anti-trust regulations and market definitions.

As it has moved into its second year, the long-running saga has once again been lent a certain piquancy by WFM's declining commercial fortunes. The degree to which the company's pursuit of Wild Oats may be seen to have presaged a financial reversal will be for history to decide, but it is interesting to note that when it moved for Wild Oats the company seemed to be on the crest of a wave, in tune and ahead of consumer trends, admired by analysts and investors, and even expanding internationally.

In stark contrast, when announcing disappointing third-quarter results this August, the company suspended its dividend and cut its growth targets. The continued uncertainty over the Wild Oats merger is hardly likely to endear the company to investors.