This past Wednesday, Judge Amit Mehta of the U.S. District Court for the District of Columbia set a hearing from May 5 through May 8, with up to three additional days if necessary, to consider the FTC’s request for a preliminary injunction to block Sysco Corp. and U.S. Foods, Inc. from merging prior to the conclusion of the FTC’s administrative trial. Sysco and U.S. Foods, the nation’s two largest food distributors, announced the merger in December 2013. The FTC reviewed the proposed merger for over a year, but negotiations between the companies and the FTC failed to result in a settlement.
On February 19, the FTC filed a complaint with the district court alleging that the merger could lead to increased prices and reduced service for schools, hospitals, restaurants, and other businesses that purchase supplies from these two companies. The FTC further alleged that a post-merger Sysco would control 75% of the national market for broadline distribution services, while the next largest competitor would control only 11% of the market. The FTC contends that the merger will have an impact on 32 local markets as well.
Sysco, not surprisingly, contends the merger will benefit customers, create supply chain efficiencies, and allow Performance Food Group, the nation’s third-largest food distributor, to better compete in the market. Sysco previously sought to address the FTC’s concerns by offering to sell assets that would generate $4.6 billion in revenue to Performance Food Group. The FTC rejected that compromise, however, stating that it did not believe Performance Food Group would be as good of a competitor as U.S. Foods prior to the proposed merger.
The outcome of the preliminary injunction hearing may preview how the administrative case unfolds. Some have speculated that the FTC will drop the case if Judge Mehta declines to issue the preliminary injunction. The administrative trial is currently set for July 21. We will report back after the district court issues its decision on the requested preliminary injunction.