Federal judge blocks Sysco, US Foods merger

by Keith Nunes
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A federal judge has temporarily halted Sysco's acquisition of US Foods.

WASHINGTON – A federal judge with the US District Court in the District of Columbia has sided with the Federal Trade Commission and temporarily halted Sysco’s acquisition of US Foods. Sysco executives now must decide whether to press on and challenge the order in court or terminate the transaction.

Sysco’s road to this point has been long. In December 2013 the company announced plans to acquire US Foods for approximately $8.2 billion. At the time the merger was announced, the transaction was to bring together Sysco, a food distributor with $44 billion in sales to restaurant, healthcare, educational, lodging and other customers with US Foods, a food service supplier with $22 billion in annual sales.

The sale to Sysco of US Foods by the latter company’s private equity owners was under review by federal authorities when, in February 2015, the Federal Trade Commission filed an administrative complaint charging that the proposed merger would “eliminate significant competition in the marketplace” and create “a dominant national broadline food service distributor.”

The FTC alleged that if the merger went forward as proposed, food service customers, including restaurants, hospitals, hotels and schools, likely would face higher prices and diminished service. The FTC authorized staff at that time to seek in federal court 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.

With the judge’s order on June 23 Sysco now must weigh its options. 

Bill Delaney, CEO, Sysco

Bill Delaney, CEO, Sysco

“While we respect the court’s decision, we are profoundly disappointed with this outcome,” said Bill Delaney, CEO of Sysco. “We diligently pursued this transaction for nearly two years because we strongly believed the merger of Sysco and US Foods would be pro-competitive and good for customers, associates and shareholders. 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.”

Debbie Feinstein, director of the FTC’s Bureau of Competition, said the court’s order will preserve competition in the marketplace.

“We look forward to proving at trial that this deal would lead to higher prices and diminished service for customers, including restaurants, hotels and schools,” she said.

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