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The FTC may block Whole Foods Market (WFMI) from buying Wild Oats Markets (OATS). Both companies are in the organic grocery business, and the government will argue this week that the combination would eliminate price competition between the two chains.

If the deal is blocked, Wild Oats has a lot of work to do.

In the last quarter, OATS had a very modest increase in revenue from $298 million in the first quarter last year to $309.9 million. Operating income fell from $4.4 million to $3.2 million.

The full year 2006 was not any better, Revenue rose to $1.183 billion from $1.124 billion. Operating loss for 2006 was $11.2 million, but the company had $28.2 million restructuring charge. Operating income in 2005 was $10.6 million.

The latter-day hippie crowd must be on a diet.

Wild Oats has a cost problem that might be solved if it is bought. Right now it has a crummy business. In May 2006, its shares were over $20. They now trade at $14.50.

It the deal with Whole Foods is killed, OATS shares may not fall much. But, the cost structure of the entire company will have to be revamped if the shares are going to move up again.

Douglas A. McIntyre