The purchase of Wild Oats Markets Inc. by rival organic foods purveyor Whole Foods Market Inc. turned a bit wilder than anticipated Tuesday when a federal appeals court overturned a lower-court ruling that allowed the merger to go though.

The ruling comes almost a year after Austin, Texas-based Whole Foods purchased the 110-store Wild Oats for $565 million and brings up questions as to whether it would be possible to unwind the merger so long after the fact.

When the companies announced plans to merge in early 2007, the Federal Trade Commission moved to block the deal, arguing it would give Whole Foods too much of the market for natural and organic foods, and could raise prices.

The federal district court ruled against the agency, saying it had not made a case for why the merger should be delayed.

But a three-judge appeals court said that was the wrong decision, and it sent the case back to the U.S. District Court for the District of Columbia for further consideration.

The ruling was a surprise to antitrust experts, said Mike Cowie, a former FTC assistant commissioner, who is now a partner at Howrey LLP, a Washington, D.C., law firm.

"This is an extraordinary situation for both the District Court and the FTC. No one can be sure about what happens now," Cowie said. But typically, it's difficult in cases such as this to "unscramble the eggs," he said.

Whole Foods, for example, could be forced to divest stores to a buyer that would be willing to operate them as an independent business, he said. That's happened with companies in the software and other industries. And the precedent was acknowledged in the court's opinion.

"The courts have the power to grant relief on the FTC's complaint, despite the merger's having taken place, and the case is therefore not moot," Judge Janice Rogers Brown wrote in the 2-1 appellate court decision.

Specifically, the three-judge panel said the lower court erred when it ruled the FTC's definition of what constituted the market for natural and organic foods was too narrow. The FTC wanted a preliminary injunction to stop the takeover while it argued its position. "The court should have taken whatever time it needed to consider the FTC's evidence fully," Brown wrote.

The FTC agreed. "We are pleased by today's decision ... and are looking forward to future proceedings before the district court, leading to a full trial on the merits before the commission," Jeffrey Schmidt, director of the FTC's Bureau of Competition, said Tuesday.

Whole Foods said it was "disappointed with this decision as customers" and employees "have already received many benefits from this merger." The company's shares closed at $22.39 Tuesday, up 36 cents.

The company said it was evaluating its legal options and noted "the decision acknowledges neither the court nor the FTC has found the merger to be unlawful. ... We await the U.S. District Court's response so this issue can be resolved."

Previously, the FTC said it was continuing its appeal because Whole Foods continues to operate many stores under the Wild Oats name, making it easier to unwind at least part of the deal.

Whole Foods, however, has now rebranded most of the Wild Oats stores, sold 35 and closed 12. Fifteen still use the Wild Oats name, but Whole Foods plans to convert them in coming weeks.

The buyers of the sold stores could not be compelled to return them to Whole Foods to fold into a reconstituted Wild Oats, said Ronald Wick, an antitrust expert and partner at the law firm of Baker Hostetler in Washington, D.C.

In Santa Fe, Wild Oats has remained open since the merger, and the store has not appeared to have lost any employees other than its general manager, Jim Kwasney, who left not long after the merger occurred.

The Wild Oats store now carries some Whole Foods-branded canned foods and other items.

A person familiar with the situation said nobody was laid off from Wild Oats after Whole Foods took over, and employee benefits are better.

Whole Foods' regional office couldn't be reached.

In comments made last September after the merger was originally approved, Will Paradise, president of Whole Foods' Rocky Mountain region, said the Wild Oats store would stay open. "They've done a great job," he said.

Paradise said Whole Foods planned to add to the Wild Oats staff, which consisted of 75 full- and part-time workers, and to upgrade equipment and fixtures.

The two stores are about one-third of a mile apart.

New Mexican reporter Bob Quick contributed to this story.