Following a June 23, 2015 ruling by the U.S. District Court for the District of Columbia granting the Federal Trade Commission request for a preliminary injunction, Sysco and US Foods abandoned their proposed merger, and the Commission has now dismissed its administrative complaint.
In light of those events, FTC Chairwoman Edith Ramirez issued the following statement:
“The parties’ decision to abandon their merger following the federal district court decision in favor of the FTC is a good outcome,” said FTC Chairwoman Ramirez. “This proposed merger between the country’s two largest foodservice distributors would have likely increased prices paid by restaurants, hotels, cafeterias, and hospitals across the country for food products and related services, and ultimately the prices paid by people eating at those establishments. The FTC is committed to maintaining vigorous competition in markets like this one that directly impact prices consumers pay for everyday purchases.”
In February 2015, the Commission challenged Sysco’s proposed $8.2 billion merger with rival US Foods, alleging that the deal would significantly reduce competition in broadline foodservice distribution, both nationwide and in a large number of local markets. The complaint alleged that the merged entity would account for 75% of the sales to national customers of broadline services, where the merging parties are the only firms with a truly national footprint that allows them to compete to serve customers, such as restaurants, group-purchasing organizations (GPOs), and foodservice companies, with locations nationwide. No other company could offset the competition that would have been lost to this merger.
Broadline distributors offer extensive product lines, including national-brand and private-label food products, and provide frequent and flexible delivery, high levels of customer service, and other value-added services such as order tracking, menu planning, and nutritional information.
In his 128-page opinion preliminarily stopping the deal, District Court Judge Amit Mehta ruled that “because the proposed merger would eliminate head-to-head competition between the number one and number two competitors in the market for national customers, the merger is likely to lead to unilateral anticompetitive effects in that market.”
The court also rejected the parties’ argument that their agreement with the country’s third-largest broadline distributor, Performance Food Group, to divest 11 distribution centers, would offset the significant competitive harm likely to result from the merger.
The administrative trial was scheduled to begin on July 21, 2015. In light of the parties’ decision to abandon the transaction, the Commission has voted 5-0 to dismiss the administrative complaint.
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