Strategy Process Section 090 Blog

SE MONEY
HD Whole Foods' CEO was busy guy online ; 17 postings under pseudonym in 1 day
BY Greg Farrell; Paul Davidson
WC 1435 words
PD 13 July 2007
SN USA Today
SC USAT
ED FINAL
PG B.4
LA English
CY © 2007 USA Today. Provided by ProQuest Information and Learning. All Rights Reserved.
LP
Anyone who thinks that posting anonymous comments on an Internet bulletin board is a harmless diversion should pay close attention to what happens to John Mackey.

Mackey, Whole Foods CEO, was outed this week as "Rahodeb," a frequent visitor to Yahoo chat rooms dedicated to stock trading. In his comments, Rahodeb was unstintingly bullish on the prospects of Whole Foods' continuing growth, and frequently critical of a rival company, Wild Oats.

TD
It's not clear whether he violated any securities laws in his pseudonymous postings, but his comments could end up hurting Whole Foods shareholders in another way. The Federal Trade Commission is using some of his remarks to bolster its contention that Whole Foods' planned acquisition of Wild Oats, announced in February, would be anti-competitive.

In a court filing Tuesday, the FTC referred to Mackey's anonymous postings to back up its position.

Corporate governance experts and image consultants say that Mackey's exposure as an anonymous commentator could cause the company's board to question his leadership abilities.

"This evidence raises more doubts about his sanity than his criminality," says Jack Coffee, a securities law expert at Columbia Law School. "The merger is a major business strategy, and he's undercut it with reckless, self-destructive behavior. It's a little weird, like catching him as a Peeping Tom."

"It's more of an embarrassment than an issue of profound ethical and legal consequence," says Eric Dezenhall, a crisis communications consultant. "It shows a degree of obsessiveness that's a little disturbing."

Wednesday, after The Wall Street Journal identified Mackey as Rahodeb, Whole Foods acknowledged that the CEO had posted anonymous comments from 1999 through 2006 using the handle, an anagram of his wife's name, Deborah.

For the curious, Yahoo on Thursday put up a link from its Finance page to all 1,394 postings with Mackey's screen name on all its message boards, going back to 1999. Some days, Mackey was a heavy poster. On Sept. 5, 2005, for instance, he posted 17 times from 12:03 a.m. until 11:09 p.m. On Nov. 11, 2005, he posted 17 times from 12:04 a.m. to 5:25 p.m.

The postings

While some of Mackey's postings sound like press releases from Whole Foods, citing same-store sales and compound annual growth, others convey the sarcastic, overheated atmosphere that often pervades Internet message boards.

"If you don't like my posts, put me on 'ignore,'" writes Rahodeb on May 6, 2005. "No one is forcing you to read my posts. If you think I'm an 'autistic dyslexic parrot' then simply stop reading my posts. Do you know how the 'ignore' feature works? Maybe you aren't as clever as you think you are?"

In other posts, Rahodeb bashes Wild Oats, criticizing former CEO Perry Odak for an alleged lack of vision, and noting that in all its years as a public company, Wild Oats hasn't turned a profit. In February 2005, Rahodeb gleefully noted that Wild Oats was going to have to restate its earnings.

"In my book this means that OATS has been misleading its investors for years now and is almost bound to result in shareholder litigation," he writes. "It also means that OATS leadership lacks either competence or integrity and probably both."

Despite Rahodeb's oft-stated opinion that Wild Oats stock was worth around $5 per share (or less), Whole Foods offered $18.50 per share in February to acquire the smaller company, then selling for $15.72.

That bid, which threatened to reduce competition in the natural foods grocery business, captured the FTC's attention. In seeking to block the merger, the FTC argues that Whole Foods, the No.1 natural and organic grocery chain, wants to destroy its leading competitor and monopolize the market in many cities. That would lead to higher prices and poorer service for customers, the FTC says in a court filing.

The agency cites Mackey's presentation to Whole Foods' board in which he says the deal would let the company "avoid nasty price wars." Mackey also told the board the merger would "eliminate forever the possibility" that chains such as Safeway and Kroger could use Wild Oats as a "springboard" to launch a rival organic food chain, according to the FTC. It contends natural and organic supermarkets don't face direct competition from mainstream groceries because of the quantity and quality of their perishables and organic products.

Mackey disputes that in a blog on the company's website, saying that Whole Foods faces "vigorous competition" from chains such as Safeway, Giant and Trader Joe's, and that Wild Oats is "only a relatively small part."

He further maintains that Whole Foods would not raise prices if it bought Wild Oats, noting its prices are no higher in markets where Wild Oats has no stores. In fact, he says, prices would be cut and service improved because Whole Foods is larger and benefits from greater buying efficiencies.

James Rill, a former antitrust chief at the Justice Department and now with the Howrey law firm, doesn't think Mackey's postings help the FTC.

"It's certainly imprudent for him to have done that, but it doesn't tell much about the real competitive consequences of Wild Oats and Whole Foods," he says.

But Steve Newborn, head of the antitrust practice for Weil Gotshal & Manges, says that any assertion by Mackey that some of his postings were not truthful could hurt his credibility in court.

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Contributing: Brad Heath, Barbara Hansen

Examples of his postings

Whole Foods CEO John Mackey often posted to a Yahoo investor bulletin board for his company under the pseudonymous Rahodeb. Some postings bashed a rival company, Wild Oats, that Whole Foods is now trying to buy. A timeline with examples of Rahodeb's postings:

1 March 28, 2006: "Whole Foods says they will open 25 stores in OATS territories in the next 2 years ... The writing is on the wall. The end game is now underway for OATS ... Whole Foods is systematically destroying their viability as a business -- market by market, city by city."

2 April 11, 2006: "What I did say about OATS back when it was at $6 a share was that it was a poorly managed company that has lost $81 million over its 18 year history and over $60 million the past 5 years. ... These are facts and not subject to dispute. The company has been very poorly managed and I don't believe it has a sustainable business model. I can't deny that the stock has traded up over the last year, entirely due I believe to buyout speculation by Ron Burkle. ... However, if Burkle sells his 15% share and nobody else buys the company, OATS stock price will return to its intrinsic value -- below $6 a share."

April 11, 2006: "... Whole Foods has a hugely successful business model by all objective financial measurements there are. OATS does not."

3 May 6, 2006: "... If selling organic foods is the key to success, then answer one simple question: why has Wild Oats lost over $80 million in its 19 years of existence? OATS sells the same product line that Whole Foods does, but they've lost money big time. How is this possible?"

4 June 21, 2006: "Invest in OATS only as a speculation of a takeover by Burkle. Invest in Whole Foods if you are willing to hold for 5+ years and to risk the stock significantly falling at some point. Over the long-term its strong growth will bail out the long- term buy & hold investors, but it may require commitment and patience."

5 Aug. 12, 2006: "This will be my final message on this bulletin board as I have lost my bet with hubris12000. ... Mr. Market hit the panic button and the stock has crashed, down almost 40% from its high of just a few months ago. Whole Foods itself has a very bright future and I will continue to hold my stock for a very long time -- until the growth begins to significantly slow. I've enjoyed my 8 years on this Board, but all things must come to an end. ... Surgeon General and Boston Cowboy -- you were both right about my true identity all along. Congratulations on your cleverness."

ART
GRAPHIC, B/W, Julie Snider, USA TODAY, Source: CSI, USA TODAY research (LINE GRAPH); PHOTO, B/W, Whole Foods Market

IN
iint : Internet/Online Services

NS
c181 : Acquisitions/Mergers/Takeovers | c41 : Management Issues | c411 : Management Moves | ccat : Corporate/Industrial News | gfod : Food/Cooking | c18 : Ownership Changes | gcat : Political/General News | glife : Living/Lifestyle | ncat : Content Types | nfact : Factiva Filters | nfcpex : FC&E Executive News Filter | nfcpin : FC&E Industry News Filter

RE
usa : United States | namz : North American Countries/Regions

IPD
FOOD & COOKING CORPORATE OFFICERS MANAGEMENT ISSUES ACQUISITIONS, MERGERS & TAKEOVERS BUSINESS/FINANCE/ECONOMY GROCERY STORE ORGANIC FOOD EXECUTIVE INTERNET ETHICS SECURITIES MERGER Federal Trade Commission Mackey, John Burkle, Ron

PUB
USA Today Information Network

AN
Document USAT000020070713e37d0000h

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