Aug. 23 (Bloomberg) -- Whole Foods Market Inc. may proceed with its $565 million takeover of rival Wild Oats Markets Inc. after an appeals court rejected U.S. regulators' attempt to block the transaction.

U.S. District Judge Paul L. Friedman in Washington last week turned down the Federal Trade Commission's request to stop the purchase because it would limit competition and lead to increased prices. The government requested the decision be put on hold while it appealed the ruling.

Today's denial of the emergency stay allows the companies to complete the transaction, said Clifford Aronson, a Skadden, Arps, Slate, Meagher & Flom lawyer who represents Wild Oats.

``Although the FTC raised some questions about the district court's decision, it has failed to make a `strong showing that is it likely to prevail on the merits of its appeal,''' the U.S. Court of Appeals for the District of Columbia wrote in its decision. ``At this stage, the FTC has failed to meet that burden.''

FTC spokeswoman Claudia Bourne-Farrell didn't immediately return a voice-mail message left at her office after hours.

Whole Foods, based in Austin, Texas, agreed to buy Wild Oats in February for $18.50 a share. The FTC sued to block the transaction in June, claiming consumers would be hurt by higher prices and decreased competition.

`Hard to Reverse'

``It's very hard to reverse a judge who was so careful in his approach,'' Aronson said in an interview today.

While the FTC may pursue an appeal without the stay in place, the agency will likely drop it because there is no practical way to undo the purchase once it's done, said Andrew Berg, an antitrust attorney with King & Spalding in Washington.

``It's very difficult once the eggs are scrambled to unscramble them,'' Berg said in an interview. ``That's particularly true in the retail sector. If the commission were to succeed on the appeal, it would be virtually impossible to restore the pre-closing competition.''

Whole Foods shares rose 70 cents, or 1.6 percent, to $44.04 at 6:54 p.m. in extended trading after the ruling. Wild Oats, based in Boulder, Colorado, increased 41 cents, or 2.3 percent to $18.48.

Whole Foods has extended the date of its tender offer to 5 p.m. New York time on Aug. 27. About 68 percent of Wild Oats shares were tendered as of Aug. 17, the company said.

`Last Legal Hurdle'

``We are pleased to have cleared what we expect to be our last legal hurdle,'' John Mackey, chief executive officer of Whole Foods, said in a statement.

In Friedman's 93-page ruling, a public version of which was released this week, the judge said the takeover won't cause consumers to spend more on natural foods because of competition from other grocers.

Several companies, including Safeway Inc., Kroger Co. and Supervalu Inc., have increased in recent years the amounts and types of premium organic and natural foods they offer, Friedman wrote.

``To put it colloquially, this train has already left the station,'' he wrote.

As part of its suit, the FTC revealed that Mackey made anonymous postings on Yahoo! Inc.'s financial message boards promoting his company from 1999 to 2006 using the name ``rahodeb.''

The U.S. Securities and Exchange Commission is investigating Mackey, and the company's board is internally reviewing his actions.

The case is Federal Trade Commission v. Wh Food Mkt Inc., 07-5276, U.S. Court of Appeals, District of Columbia.

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

Last Updated: August 23, 2007 21:24 EDT