Sysco’s Merger With U.S. Foods Blocked in Court

WASHINGTON (CN) - A federal judge has temporarily blocked the merger of the two largest food distribution companies in the country.

The Federal Trade Commission persuaded U.S. District Judge Amit Mehta on Tuesday that the merger of Sysco and U.S. Foods would "substantially impair competition in the national consumer and local broadline markets."

Sysco has said only that it will look at the "merits of terminating the merger agreement," but The New York Times quoted U.S. Foods as saying that any legal block from the federal court would cause it to abandon the merger.

It's been nearly two years since Sysco agreed to acquire U.S. Foods for $3.5 billion, drawing fire from the FTC since the two companies represent the largest food distributers in the country "by a wide margin."

The FTC filed its formal challenge this past February, saying the merger would raise prices on foodservice products by eliminating the industry's largest rivalry.

"If consummated, the merger threatens significant harm to a wide range of foodservice customers, who will be forced to absorb the increased costs and, in many cases, pass them on to consumers," the FTC's complaint alleged.

Mehta also filed an opinion under seal but his injunction requires the companies to hold off on further merger discussions pending the resolution of FTC's legal challenge.

FTC Bureau of Competition director Debbie Feinstein applauded the decision for preserving "competition in both local and national broadline foodservice distribution markets."

"We look forward to proving at trial that this deal would lead to higher prices and diminished service for customers, including restaurants, hospitals, hotels, and schools," Feinstein added in a statement.

Once the parties flag any sensitive information in the ruling, the court will make a redacted copy of the decision public on Friday.

Sysco president Bill DeLaney called the a profound disappointment.

"We diligently pursued this transaction for nearly two years because we strongly believed the merger of Sysco and US Foods would be procompetitive and good for customers, associates and shareholders," DeLaney said in a statement. "Nevertheless, we certainly understood this outcome to be possible and have been developing plans for the business moving forward."

U.S. Foods meanwhile seemed to take the decision in stride, talking only about its commitment to "delivering great food, cultivating talented food people and making it easy for our customers to work with us."

"We are ready for whatever comes next," the company said in a statement. "We have the talent, passion and financial foundation to take this company to the next level for our customers and for our employees."

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