Sysco Gears For Court Fight To Override FTC’s Block Of US Foods Merger

There has been no further word from Sysco Corp. or the Federal Trade Commission since the agency sued on Feb. 19 to block the Houston company’s proposed $3.5 billion acquisition of rival US Foods. The move sets the stage for a major court battle over a plan to combine the nation’s two largest food distributors.

In a 3-2 vote, the FTC said the proposed merger would create a dominant national company that could raise prices and reduce service for restaurants, hotels, schools and other institutions that buy food, foodservice equipment and supplies, paper and janitorial products from Sysco and US Foods. The agency contended the combination would “violate the antitrust laws by significantly reducing competition nationwide and in 32 local markets.” Read the FTC’s full announcement here.

The lawsuit comes more than a year after the $3.5 billion deal was announced and just weeks after Sysco proposed a new set of asset sales it hoped would appease antitrust regulators. That most recent offer, to sell 11 facilities to Performance Food Group, was not enough to convince Washington officials that the deal should be approved.

Instead, the FTC maintained that a takeover of US Foods by Sysco would create an uncomfortably dominant force in the so-called broadline foodservice market, which encompasses big providers of supplies and ingredients to industrial kitchens. The FTC said the two companies were the only foodservice distributors with a broad national footprint that offered extensive product lines, frequent deliveries and services such as menu planning and added that many restaurant and hotel chains and foodservice management companies consider Sysco and US Foods to be each other’s closest competitor. “Consumers across the country, and the businesses that serve them, benefit from the healthy competition between Sysco and US Foods, whether they eat at a restaurant, hotel or a hospital,” Deborah Feinstein, director of the FTC’s Bureau of Competition, said in a written statement.

The combined companies were expected to generate more than $65 billion in annual revenue. Both Sysco and US Foods have said the $3.5 billion merger would allow them to improve service and achieve hundreds of millions of dollars in cost savings.

Sysco plans to continue its fight in court and has hired top antitrust lawyers (who are former FTC officials) to lead its defense. The company has said it could keep the merger agreement in place long enough for any case to go to trial.

The FTC plans to try the merger case through its own administrative litigation system and set a trial date of July 21. But the commission said it would concurrently ask a Washington, D.C., federal court to issue a preliminary injunction to block the deal while the case at the FTC proceeds. The merger agreement expires in September, but they could extend it if litigation isn’t wrapped up by then.