Judge Puts Brakes on Sysco-US Foods Merger Deal

A federal judge in the United States on June 23 handed down a preliminary injunction halting Houston, Texas-headquartered Sysco Corporation’s bid to acquire Rosemont, Illinois-based US Foods Inc., a decision that could ultimately prevent a merger of the nation’s two largest food distribution companies.

The proposed Sysco-US Foods combination, proposed in December of 2013, was presented as a move to gain efficiencies and cut operating costs by consolidating the distribution of food products, ingredients and other items to the foodservice industry in North America. The Federal Trade Commission (FTC) opposed the move straight away, concerned that a reduction in competition could lead to higher prices paid by customers.

“The FTC has shown that there is a reasonable probability that the proposed merger will substantially impair competition in the national customer and local broad line markets, and that the equities weigh in favor of injunctive relief,” declared US District Judge Amit Mehta in a two-page order.

No other details were immediately provided by the court, as the opinion was sealed to keep proprietary commercial data confidential. Meanwhile, a redacted version of the ruling is expected to be released to the public on June 26.

Bill DeLaney, Sysco’s chief executive officer, noting that the company was “profoundly disappointed” in the decision, said: “We will take a few days to closely review the court’s ruling and assess our legal and contractual obligations, including the merits of terminating the merger agreement.”

US Foods logo usfIf the deal does not come to fruition, Sysco will reportedly have to fork over $300 million to US Foods. That would be on top of $355 million already invested in integration planning, hiring antitrust lawyers and other related costs.

Sysco, which generated more than $46 billion in sales last year, is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its product line includes equipment and supplies for the foodservice and hospitality industries. The company operates 194 distribution facilities serving approximately 425,000 customers.