Although the tie may seem somewhat tenuous, natural grocer Whole Food’s (WFMI) proposed merger with rival Wild Oats (OATS) may have more in common with the XM (XMSR) and Sirius (SIRI) merger than you think. Both companies have to get past a reluctant Federal Trade Commission.
An audio podcast of this article is available at: poweropt.com/podcasts/2007_06_06_Oats.mp3
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The governmental oversight agency has heartburn over the Whole Foods merger because it feels a competition-less void would be left in the natural food market. Whole Foods argues the competition from conventional grocers is more than enough to provide adequate competition. In a statement Whole Foods CEO John Mackey said, “The FTC has failed to recognize the robust competition in the supermarket industry, which has grown more intense as competitors increase their offerings of natural, organic and fresh products, renovate their stores and open stores with new banners and formats resembling Whole Foods Market.”
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The argument forwarded by satellite providers XM (XMSR) and Sirius (SIRI) is the same. The companies feel terrestrial radio and portable mp3 devices with downloadable content such as this audio blog provide sufficient competition.
In the case of both mergers, the companies don’t feel the market is evolved enough to support two or more large competitors. The FTC has yet failed to agree with this sentiment.
The Natural Foods Merger:
The FTC yesterday, attempting to block the Wild Oats (OATS) and Whole Foods (WFMI) $565 million merger, filed a lawsuit. Wild Oats said it would cooperate with Whole Foods to challenge the FTC’s opposition to the deal. The deal proposed by Whole Foods would allow the company to acquire Wild Oats for $18.50 a share.
Despite the setback, the grocers feel strongly the deal will go through. The statement from the Wild Oats CEO, Greg Mays, concluded, “We continue to believe very strongly that this merger is in the best interest of all our constituents. While we disagree with the FTC’s position and believe it is without legal and factual merit, we are confident that, once presented with the facts, the court will agree that this merger is pro-competitive and the FTC’s application for an injunction will be denied.”
The Satellite Merger:
Facing stiff competition from federal lawmakers who feel the combination of the two satellite radio companies will lead to higher consumer prices, the companies have hired a high price Washington lobbying firm to help in their regulatory approval efforts.
Jack Quinn and Ed Gillespie founded the lobbying firm. Quinn served as counsel to President Bill Clinton from 1995 to 1997, and Gillespie served as the Republican National Committee chairman during the 2004 election cycle. This kind of firepower could mean a potential approval. Something investors have not responded to as both satellite stocks are down in recent days.
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The following option trades, with the exception of the Sirius trade, have 46 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
|PowerOptions covered call Natural Foods and Satellite Radio (46 days)|
|WFMI||$40.48||FMQGH||07 JUL $40.00||$1.72||4.20%||3.20%||3.20%|
|OATS||$17.16||QOQGW||07 JUL $17.50||$0.45||2.60%||2.70%||4.70%|
|XMSR||$11.21||QSYGB||07 JUL $10.00||$1.45||12.90%||2.50%||2.50%|
|SIRI||$2.84||QXOIG||07 SEP $3.00||$0.25||8.80%||9.70%||15.80%|
WFMI – The Whole Foods trade involves the July $40 call option and offers 4.2% downside protection and 3.2% potential profit if the stock is above the $40 strike price at the end of the option period.
Competitors for WFMI include: Wild Oats Markets Inc. (OATS), GNC Corporation (private), and Trader Joe’s Company (private).
OATS – The Wild Oats trade involves the July $17.50 call option and offers 2.6% downside protection and 4.7% potential profit if the stock is above the $17.50 strike price at the end of the option period.
Competitors for OATS include: Kroger Co. (KR), Whole Foods Market Inc. (WFMI), and Trader Joe’s Company (private).
XMSR – The XM Satellite trade involves the July $10 call option and offers 12.9% downside protection and 2.5% potential profit if the stock is above the $10 strike price at the end of the option period.
Competitors for XMSR include: Clear Channel Communications Inc. (CCU), Cumulus Media Inc. (CMLS), and Sirius Satellite Radio Inc. (SIRI).
SIRI – The Sirius trade involves the September $3 call option and offers 8.8% downside protection and 15.8% potential profit if the stock is above the $3 strike price at the end of the option period.
Competitors for SIRI include: Clear Channel Communications Inc. (CCU), Cumulus Media Inc. (CMLS), XM Satellite Radio Holdings Inc. (XMSR), and Spanish Broadcasting Sys. (SBSA).
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