The Federal Trade Commission has filed an administrative complaint charging that the proposed merger of Sysco and US Foods would violate the antitrust laws by significantly reducing competition nationwide and in 32 local markets for foodservice distribution services.
Sysco operates the second largest private truck fleet, while U.S. Foods is ranked as fifth, according to Transport Topics most recent rankings of the 100 largest shipper-owned truck fleets in North America.
The FTC alleges that if the merger goes forward as proposed, foodservice customers, including restaurants, hospitals, hotels, and schools, would likely face higher prices and diminished service. Eleven state attorneys general joined the FTC in the antitrust action.
In a 3-2 vote, the commission said it will seek in federal court a temporary restraining order and a preliminary injunction to prevent the parties from consummating the merger.
“This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline foodservice distributor,” said Debbie Feinstein, director of the FTC’s Bureau of Competition. “Consumers across the country, and the businesses that serve them, benefit from the healthy competition between Sysco and US Foods, whether they eat at a restaurant, hotel, or a hospital.”
According to the FTC complaint, a combined Sysco/US Foods would account for 75% of the national market for broadline distribution services. In addition, the parties would also hold high shares in a number of local markets.
Sysco lawyers disagreed with that 75% figure, according to published reports. “There is no national market. It is pure mythology,” said Richard Parker, an attorney representing Sysco from O’Melveny & Myers.
"The facts are strongly in our favor and we look forward to making our case in court," said Bill DeLaney, Sysco's president and CEO. "Those of us who work in this industry every day know it is fiercely competitive. Customers of all types have access to food distribution services from a wide variety of companies and any number of channels. In fact, the overwhelming majority of restaurants and food operators choose their foodservice distributor locally, where they have choices among many excellent companies."
The following state attorneys general have also joined the FTC’s complaint for a preliminary injunction to be filed in federal district court: California, Illinois, Iowa, Maryland, Minnesota, Nebraska, Ohio, Virginia, Pennsylvania, Tennessee, and the District of Columbia.
Sysco announced its merger with US Foods in December 2013 for $3.5 billion.
Early this month Sysco said it would sell nearly a dozen US Foods facilities to rival Performance Food Group due to the merger. Performance Food Group is rated as the North America’s 14th largest private fleet, according to Transport Topics.