A week-long hearing on the government’s request to block the merger of Sysco and US Foods – two top food distributors – has been extended.
At least one other day of testimony will be held and more proceedings will be scheduled for later in the month – before U.S. District Court Judge Amit Mehta will issue a decision on whether to grant a preliminary injunction in the antitrust case, according to The Wall Street Journal.
The Federal Trade Commission (FTC) is trying to block the deal because it contends the merger of the food distributors will cause higher prices and less competition in the market. But US Foods and Sysco say the deal will lead to lower costs and improved customer service, and the market will still be competitive if they combine.
If the preliminary injunction is granted, it is likely the two companies would drop their planned merger based on recent statements. “We will terminate if this court enjoins the transaction,” David Schreibman, an executive vice president for strategy at US Foods, told Mehta this week.
If they do not drop the proposed merger, the FTC may hold a proceeding on the deal during the summer.
The two companies provide food and food-related products to restaurants, hotels and schools, among other institutions.
Also, US Foods and Sysco plan to sell off 11 distribution centers to Performance Food Group, one of their competitors, which is seen as a way to improve competition in the market.
Still, opponents to the merger, such as the Teamsters Union, have argued that, “Joining Sysco and US Foods under one roof will give them overnight nearly 70 percent of sales in many regional markets, where they will dwarf whatever competitors remain.”
Louis Biscotti, global practice leader for the food and beverage sector at WeiserMazars, told InsideCounsel, “The local distributors will always have a place.”
Some restaurants want daily delivery, something that the bigger companies will not offer, and restaurant owners may want lower prices than what is offered by the national companies. But, he adds, that in some locations there are no other suppliers than the national firms, so there are no other choices for restaurants.
Meanwhile, the attempt to block the merger by the FTC indicates the commission’s “aggressive approach,” according to Mark Davis, an attorney with Harris, Wiltshire & Grannis, who formerly was a prosecutor with the Department of Justice’s Antitrust Division. He told InsideCounsel that the actions on the merger represent “one of the bigger FTC challenges in recent years.”
If the FTC can block the deal, it may signal tougher standards for future mergers. Also, the way the market is defined in this case, could have an effect on other cases, Davis said.
Also, it is noteworthy that preliminary injunction proceedings in such cases “are not brought very often,” Lisl Dunlop, an attorney with Manatt, Phelps & Phillips, said.
She points out too that economists will likely play an important role in determining the level of competition in the market.
InsideCounselhas reported that the FTC has said, “The merged company would account for three-fourths of the U.S. market for broadline food distribution, holding monopolistic shares in several large markets.”