June 19 (Bloomberg) -- Whole Foods Market Inc.'s chief told board members that buying Wild Oats Markets Inc. would reduce competition for natural and organic groceries, according to a lawsuit by U.S. regulators that seeks to block the merger.

``We eliminate forever the possibility of Kroger, Supervalu, or Safeway using their brand equity to launch a competing national natural/organic food chain,'' Whole Foods Chief Executive Officer John Mackey told directors in an e-mail before voting on the proposed acquisition. The Federal Trade Commission filed the suit this month; it was unsealed today.

Kroger Co., Supervalu Inc. and Safeway Inc., are the three largest U.S. supermarket chains. Whole Foods and Wild Oats are the two biggest U.S. natural-foods grocers.

The FTC filed the complaint to prevent Whole Foods, based in Austin, Texas, from acquiring Wild Oats for $565 million. The agency said the combined company would control too much of the market and harm competition. Today's unsealing of the lawsuit provided more details about the agency's concerns.

Mackey's comments ``present a difficult challenge for the lawyers to deal with,'' said Chris MacAvoy, a partner at Howrey LLP, who specializes in antitrust cases.

Mackey said on his company Web log today that part of the motivation for any merger is reducing competition.

Self-Evident

``This is so self-evident to me that I really can't understand why the FTC wants to make a big deal out of it,'' Mackey wrote. ``If the FTC is opposed to the elimination of all competition, then I don't understand why they approve any mergers?''

Whole Foods agreed for the suit to be unsealed to ``help with transparency and openness as we move forward with this legal process,'' company spokeswoman Kate Lowery said.

``We continue to feel strongly that once a judge is presented with the facts he'll agree that this merger is pro- competitive,'' Wild Oats spokesman Sonja Tuitele said.

Mackey told the board that the purchase would allow it to avoid ``nasty price wars'' in several markets that would harm its margins, according to the suit.

Wild Oats ``is the only existing company that has the brand and number of stores to be a meaningful springboard for another player to get into this space,'' Mackey told board members, according to the suit. ``Eliminating them means eliminating this threat forever, or almost forever.''

Whole Foods agreed in February to buy Wild Oats. It has said it will ``vigorously challenge'' the FTC and continue to pursue the merger.

Shares of Whole Foods fell 56 cents to $38.95 at 4 p.m. in Nasdaq Stock Market trading. Boulder, Colorado-based Wild Oats dropped 17 cents to $17.03.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net

Last Updated: June 19, 2007 18:51 EDT