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Alexandra Biesada

Sysco to Fight FTC for US Foods Merger

by Alexandra Biesada | Dun & Bradstreet Editor

April 1, 2015 | No Comments »

SyscoTruck_flickrCC_gazeronly_990px-04Sysco is maneuvering to challenge the Federal Trade Commission‘s attempt to block its proposed megamerger with US Foods, leading up to court hearings set to begin in May. Following the FTC’s 3-2 decision to block the deal, the food service giant has hired the Washington, DC-based law firm O’Melveny & Myers to represent it in its fight with the commission. Sysco contends that the proposed takeover of its largest competitor is “procompetitive” and that the FTC failed to understand the “competitive dynamics of the food service distribution industry.” While the FTC’s Bureau of Competition believes that consumers, and the businesses that serve them, benefit from the healthy competition between the two companies, Sysco contends they’d be better served by the combined company. “The facts are strongly in our favor and we look forward to making our case in court,” Sysco CEO Bill DeLaney said in a statement.

Really!? After Sysco and US Foods announced their $3.5 billion deal in December 2013, the tie-up immediately drew scrutiny from regulators, customers, and competitors concerned the merger would result in higher prices and significantly reduced competition. In its complaint, the FTC charged the proposed deal would violate antitrust laws and would be anticompetitive because Sysco would control 75% of the market following the merger. In its view, Sysco believes the combined companies would have about 25% of the market share of the $238 billion market.

An attempt by the companies to win approval for the deal by offering to sell about a dozen distribution centers with some $5 billion in sales to the industry’s third-largest company, Performance Food Group, failed to satisfy regulators.

The legal battle brewing between Sysco and the FTC is the highest-profile merger challenge since the FTC sued to block Whole Foods Market‘s acquisition of its chief rival Wild Oats Market. (That case was eventually settled when Whole Foods agreed to sell the Wild Oats brand, among other assets.)

A federal judge has set a May 5 start date for hearings to decide whether to issue a preliminary injunction to block the two companies from merging ahead of a full-blown consideration of the case by the FTC’s in-house administrative court system scheduled to begin in July.

Stay tuned…


Photo by Flickr user gazeronly, used under a Creative Commons license.

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