Antitrust Law Daily Wrap Up, TOP STORY—D.D.C.: Proposed Sysco/US Foods merger blocked to permit FTC review, (Jun 24, 2015)

By Jody Coultas, J.D.

There was a reasonable probability that the proposed merger between Sysco Corporation and US Foods, Inc. will substantially impair competition in the markets for broadline foodservice distribution services sold to national and local customers, according to the federal district court in Washington D.C. A preliminary injunction halting the proposed merger pending FTC administrative review was granted by the court yesterday; however, the court’s opinion remains under seal until at least Friday (FTC v Sysco Corp., June 23, 2015, Mehta, A.).

Sysco and US Foods are the largest broadline foodservice distributors in the United States, according to the FTC. Broadline distributors offer national-brand and private-label food products, and provide frequent and flexible delivery, customer service, and other value-added services such as order tracking, menu planning, and nutritional information.

According to the FTC complaint, the proposed merger would account for 75 percent of the national market for broadline distribution services. In addition, the parties would also hold high shares in a number of local markets. Sysco and US Foods compete vigorously with each other to meet the needs of customers with foodservice locations dispersed nationwide or across multiple regions of the country. The merger is likely to harm competition in 32 local markets, the FTC claims.

The court ordered Sysco and US Foods to prevent any such merger, and to maintain the status quo until either: (1) the completion of all legal proceedings by the FTC challenging the transaction, including all appeals, or (2) further order of the court, including upon the request of the FTC, before completion of such legal proceedings.

FTC Bureau of Competition Director’s statement. The court’s ruling “will preserve competition in both local and national broadline foodservice distribution markets,” FTC Bureau of Competition Director Debbie Feinstein stated yesterday. “We look forward to proving at trial that this deal would lead to higher prices and diminished service for customers, including restaurants, hospitals, hotels, and schools.”

Sysco response. In response to the court’s ruling, Sysco’ President and Chief Executive Officer Bill DeLaney stated that the company’s was profoundly disappointment with the decision, and will assess its legal and contractual obligations in the coming days, including the possibility of terminating the merger agreement.

“We diligently pursued this transaction for nearly two years because we strongly believed the merger of Sysco and US Foods would be procompetitive and good for customers, associates and shareholders. Nevertheless, we certainly understood this outcome to be possible and have been developing plans for the business moving forward,” according to DeLaney.

A hearing in the matter is set to commence before an FTC administrative law judge on July 21.

The case is Civil No. 1:15-cv-00256-APM.

Attorneys: Stephen Weissman for FTC. Richard G. Parker and Haidee L. Schwartz (O'Melveny & Myers LLP) and Joseph F. Tringali (Simpson, Thacher & Bartlett LLP) for Sysco Corp. Peter Coyne Thomas (Simpson Thacher & Bartlett, LLP) for USF Holding Corp. and US Foods, Inc.

Companies: Sysco Corp.; USF Holding Corp.; US Foods, Inc.

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