The Federal Trade Commission (FTC) has sued to block the merger and has requested a preliminary injunction to stay the merger until the lawsuit is heard. Hearings on the injunction are scheduled to begin on May 5. The FTC’s five appointed commissioners voted 3-2 to proceed with a challenge to the merger.
The merger deal was set to expire on March 8. The extension means that the $8.2 billion merger would not close until 17 months after it was first announced, at the earliest.
The case between the FTC and the two giants hinges on the significance of the combined company’s national presence in the food distribution business. Sysco and US Foods currently are the only two companies that distribute a broad range of food products nationwide.
The FTC argues in its lawsuit that the merger would create a single company with 75 percent of the national broadline distribution market. Combined, the two companies would have 133 distribution centers. By comparison, the next largest distributor, Performance Food Group, has 33 centers. The FTC argues that the two companies would have more than 50 percent of the food distribution business in 32 markets. Food service companies, including restaurants, schools and hospital cafeterias, often have only two companies to choose from for food deliveries.
Sysco and US Foods argue that the market is competitive, with numerous small and regional competitors. Retailers like Restaurant Depot and Costco also provide avenues for food service companies to get supplies. The companies argue that the merger will enable them to lower prices. Performance Food Group, which has agreed to buy 11 facilities that generate $4.6 billion in revenue, from Sysco-US Foods, would be strengthened if the merger goes through.