U.S. regulators may sue to block the proposed merger of Sysco and US Foods, despite efforts by the food distributors to appease critics of the deal, according to the New York Post.
The report indicated that the Federal Trade Commission was prepared to vote Wednesday on the controversial, $8.2 billion merger, but remained skeptical of the impact of the deal on competition in the food distribution market.
Regulators are apparently concerned that the Sysco-US Foods deal would combine the only two distributors that can distribute a broad range of food products nationwide.
Sysco argued that the deal would enable it to lower prices, and that the combined companies would still have less than a quarter of the total food distribution market. The company said many large, national restaurant chains and food purchasers use multiple contracts from different regional distributors instead of a single, national distributor.
Last week, Sysco said it reached a deal with Performance Food Group to sell 11 US Foods facilities with $4.6 billion in annual sales in a deal that would provide PFG with a broader, national reach.
In theory, such a deal would make Performance a larger national competitor. But the FTC didn’t approve the deal, and Sysco executives said they planned to bring the matter directly to FTC commissioners. Sysco officials have been meeting with FTC leaders this week, the Post said.
“Over the last 12 months, we have worked in good faith with the FTC to help them better understand the highly competitive U.S. foodservice distribution industry and significant customer benefits that will result from the merger of Sysco and US Foods,” Sysco CEO Bill DeLaney said in a statement last week. “Unfortunately, the FTC has taken a different view of the potential competitive impacts of the merger. While we respectfully but vigorously disagree with the FTC’s analysis, we believe this divestiture package fully addresses its concerns.”
The restaurant industry is closely watching the Sysco-US Foods merger because of its potential impact on the distribution market. The deal has been in limbo since it was announced 14 months ago.
Meanwhile, some consumer groups and the Teamsters union oppose the deal.
The Teamsters represents 8,000 Sysco workers and 4,000 US Foods employees. The union argues that even with the sale of facilities to PFG, a combined Sysco-US Foods entity would be much larger than PFG, and that the deal wouldn’t come close to recreating the competition that exists between the two companies.
The Teamsters argued that the deal would give Performance Food Group 35 facilities, which would make it the second-largest broadline distributor in the U.S. However, it would still be dwarfed by the 159 facilities owned by Sysco and US Foods.
In the past, Teamsters officials have expressed concern that combining the two distributors would ultimately result in job losses for workers.
“It seems highly unlikely that the proposal would recreate anywhere near the level of competition that exists today,” said Steve Vairma, director for the Teamsters Warehouse Division, in a statement. “On its face, the proposed fix seems unlikely to do much to reduce Sysco’s dominance following the acquisition of US Foods. Even if the proposal included a few more facilities, it would still be a deeply risky experiment, one that could cost consumers and workers dearly.”
By Jonathan Maze