Sysco To Contest FTC's Attempt To Block $3.5 Bln Merger With US Foods

(RTTNews) - Food-distribution giant Sysco Corp. (SYY) said late Thursday that it will challenge the Federal Trade Commission's attempt to block its proposed $3.5 billion merger with US Foods, Inc. that will create a combined entity with annual revenues of $65 billion. The closure of the deal is subject to FTC approval.

The antitrust regulator had earlier in the day filed an administrative complaint charging that the proposed merger between two of the largest broadline foodservice distributors in the U.S. would violate the antitrust laws by significantly reducing competition nationwide and in 32 local markets.

FTC stated in the complaint that the merged entity would account for 75 percent of the national market for broadline distribution services. FTC added that the entity would also hold high shares in a number of local markets.

"This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline foodservice distributor. 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," said Debbie Feinstein, the Director of the FTC's Bureau of Competition.

The FTC has filed a lawsuit in a federal court, seeking a temporary restraining order and a preliminary injunction to prevent the two companies from consummating the merger, and to maintain the status quo pending the administrative proceeding.

The lawsuit comes more than a year after the FTC began reviewing the proposed deal and following the failure to reach a settlement with the companies that would have allayed antitrust issues.

The FTC has also rejected Sysco's plan earlier in the month to divest 11 food distribution centers that was aimed at addressing the concerns of the antitrust regulator. Sysco had agreed to sell these 11 centers, which generated $4.6 billion in annual revenues, to Performance Food Group.

The FTC's commissioners opposed the deal by a slim margin of a 3-2 vote. The administrative trial is scheduled to begin on July 21, 2015.

Meanwhile, Sysco believes that 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. 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," Sysco President and CEO Bill DeLaney said in a statement.

Houston, Texas-based Sysco agreed in December 2013 to acquire closely held US Foods for $3.5 billion in cash and stock, billed as the largest food-distribution deal in eight years in North America. With the assumption of US Foods' debt, the deal is valued at about $8.2 billion.

Rosemont, Illinois-basd US Foods' owners include private-equity firms KKR & Co. (KKR) and Clayton, Dubilier & Rice LLC. The two firms own 98 percent of US Foods.

SYY closed Thursday's regular trading session at $38.56, down $1.35 or 3.38% on a volume of 9.78 million shares.