Sysco Corporation plans to contest the US Federal Trade Commission (FTC) attempt to block its proposed merger with US Foods.
The company said it is looking forward to a full judicial review of the competitive benefits of this merger. US Foods is owned by private equity companies including KKR & Co.
The five FTC commissioners voted 3-2 to seek a preliminary injunction in the US District Court for the District of Columbia to prevent the parties from closing the transaction.
The agency, which regulates business competition, said allowing Sysco and US Food to combine would mean higher prices for restaurants, hotels, hospitals, and schools that order everything from food to cleaning supplies from one vendor.
“This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline foodservice distributor,” said Debbie Feinstein, director of the FTC’s Bureau of Competition.
Sysco believes the FTC’s decision is based on an erroneous view of the competitive dynamics of the foodservice distribution industry.
“The facts are strongly in our favor and we look forward to making our case in court,” said Bill DeLaney, Sysco’s president and chief executive officer. “Those of us who work in this industry every day know it is fiercely competitive. Customers of all types have access to food distribution services from a wide variety of companies and any number of channels. In fact, the overwhelming majority of restaurants and food operators choose their foodservice distributor locally, where they have choices among many excellent companies.
“For example, the FTC claims that Sysco and US Foods combined have a 75% market share in an ill-defined ‘national broadline market,’ ignoring the fact that the vast majority of ‘national customers’ use multiple regional or local distributors,” he said. “Additionally, the FTC claims the merger would harm competition in 32 local markets, ignoring the existence of myriad local suppliers, including broadline companies, specialty companies, cash-and-carry, and club stores with whom Sysco and US Foods compete on a daily basis.”
Despite its disagreement with the FTC’s position, Sysco listened to the agency’s concerns and delivered a divestiture package to enable Performance Food Group (PFG) to compete more effectively for customers coast to coast.
“This merger has always been about serving customers better and driving costs out of the system,” DeLaney said. “By unlocking at least $600 million in annualized cost synergies, the merger will allow Sysco to lower costs for customers, deliver better service, and improve selection across all product segments, all of which will increase competition across the entire foodservice distribution industry to the benefit of customers.”
