Sysco defends proposed acquisition of US Foods

by Eric Schroeder
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HOUSTON — Sysco Corp. on April 21 filed a memorandum in the US Federal District Court for the District of Columbia opposing the US Federal Trade Commission’s effort to block its proposed merger with US Foods, a transaction Sysco claims would make the US food service distribution industry more competitive.

A hearing on the FTC’s motion is scheduled to begin May 5. At the hearing, Sysco said it plans to emphasize the following points:

• A market for broadline food service distribution services for “national customers” does not exist.
“The food service distribution industry is extremely competitive,” Sysco said. “Customers of all sizes, including the industry’s largest customers, have many options from which to choose, including systems distributors, specialty distributors, cash-and-carry stores and broadline distributors.”

• Local markets are highly competitive.

“The FTC’s flawed logic on the structure of the local food service distribution market led to dubious analysis of market share,” Sysco said. “In one instance, the FTC claims Sysco and US Foods would control 100 percent of the market in San Diego. In reality, more than two dozen companies compete for customers’ business in San Diego. Local market dynamics are similar across the US.”

• Synergies will reduce Sysco’s annual costs by at least $600 million.

“These savings allow the combined company to become more efficient, invest in improved customer service and innovative products, and reduce customer prices, all of which contribute to an even more competitive market,” Sysco said.

• A robust, binding divestiture package with Performance Food Group creates a stronger competitor.

“The proposed sale of facilities in 11 markets to PFG directly addresses FTC concerns that the merger might reduce choice for customers with locations in multiple local markets and regions,” Sysco said.
Bill DeLaney, president and chief executive officer of Sysco, said, “We look forward to presenting all of the facts in court and ultimately, through this merger, delivering better service at a lower cost through a more efficient, innovative and competitive combined company.”

Sysco agreed to acquire US Foods in December 2013 in a transaction valued at $8.2 billion, but the FTC on Feb. 29 filed an administrative complaint charging that the proposed merger of Sysco and US Foods would “eliminate significant competition in the marketplace” and create “a dominant national broadline food service distributor.”
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