If a new legal ruling forces Whole Foods to reverse its Wild Oats buy-out, WFMI shares could soar.

A federal appeals court has decided that the FTC's challenge of the merger between Whole Foods (NASDAQ: WFMI) and Wild Oats should have gone forward. A lower court has said the FTC had to cease its investigation into whether the marriage was anti-competitive.

According to The Wall Street Journal, "Jeffrey Schmidt, head of the FTC's competition bureau, said the agency is hopeful the ruling will ultimately allow the FTC to undertake a full review of competitive issues raised by the combined companies."

Whole Foods ended up with 74 Wild Oats stores, which it plans to cut down to 50. The FTC could ask the new company to close other locations in areas where the new parent has two stores, and, perhaps a monopoly for that region.

The FTC could also argue that the entire merger constitutes an antitrust threat. That news could not be better for WFMI shareholders. If Wild Oat has to be spun back out, it would need to re-brand its stores, add expensive management, and undertake its own marketing. In other words, it would be a severely weakened competitor for Whole Foods, instead of a thorn in the side of WFMI shareholders.

Shares in WFMI are off well over 40% this year. Stocks in many other major food retailers are closer to flat. Part of this may be due to the concern that premium products do poorly in a recession. But it may also have to do with the fact that Wild Oats stores were considered weaker as a group than the original Whole Foods chain.

If WFMI gets to rid itself of the company it got in the buy-out, its shares might get back from $22, near their 52-week low, to the $30 to $40 range.

Douglas A. McIntyre is an editor at 247walls.com.