Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Senators urge FTC to closely scrutinize proposed US Foods-Sysco deal, (Oct 22, 2014)

By Greg Hammond, J.D.

U.S. Senators Amy Klobuchar (D-Minn.) and Mike Lee (R-Utah)—the respective Chairman and Ranking Member of the Subcommittee on Antitrust, Competition Policy and Consumer Rights—have sent a letter to FTC Chairwoman Edith Ramirez, requesting that the Commission “carefully review and closely scrutinize” Sysco Corp.’s proposed acquisition of US Foods, Inc.

Sysco and US Foods represent the two largest foodservice companies in the country, noted the Senators, and a merger of the two would result in an entity with 27 percent of the market by revenue. The next largest competitor would only have a five percent market share. Citing the American Antitrust Institute, Senators Klobuchar and Lee noted that the combined entity also would have an approximate 54 percent market share of the broadline foodservice distribution market.

“Critics of this transaction worry that by consolidating the market through a merger of the top two competitors, consumers will face higher prices and reduced quality of service,” the Senators wrote. “They also worry that some customers will not consider regional foodservice competitors as adequate substitutes for a national broadline company—leading, perhaps, to a discrete market for national broadline service over which the combined entity would enjoy a monopoly.”

Sysco and US Foods, on the other hand, suggest that the acquisition will lead to $600 million in cost savings, as well as the ability to negotiate lower prices for customers, the Senators wrote. In addition, the companies believe that the foodservice industry will remain highly competitive after the merger.

Given the differing views on the effects of the proposed merger on competition, Senators Klobuchar and Lee request that the FTC examine: (1) whether there is a distinct market for national broadline service; (2) the overlap between local and regional markets; (3) whether adequate competition depends on the willingness of regional foodservice companies to combine or expand their activities, and, if so, how likely they are to take those steps successfully; and (4) the contention that the proposed merger will result in significant cost savings and price competition that will benefit the small businesses that use broadline companies.

Companies: US Foods, Inc.; Sysco Corp.

News: AcquisitionsMergers Antitrust