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FTC files suit to block Sysco-U.S. Foods merger

The Federal Trade Commission 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 broadline foodservice distribution services.

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 than would be the case but for the merger.

The FTC also authorized staff to seek in federal court a temporary restraining order and a preliminary injunction to prevent the parties from consummating the merger, and to maintain the status quo pending the administrative proceeding.

“This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline foodservice distributor,” Debbie Feinstein, director of the FTC’s Bureau of Competition, said in a statement. “Consumers across the country, and the businesses that serve them, benefit from the healthy competition between Sysco and U.S. Foods, whether they eat at a restaurant, hotel or a hospital.”

Sysco and US Foods are the largest broadline foodservice distributors in the United States. Broadline distributors offer extensive product lines, including national-brand and private-label food products, and provide frequent and flexible delivery, high levels of customer service, and other value-added services such as order tracking, menu planning, and nutritional information.

According to the FTC complaint, a combined Sysco-U.S. Foods would account for 75 percent of the national market for broadline distribution services. In addition, the parties would also hold high shares in a number of local markets.

The FTC also charges that the proposed sale of 11 U.S. Foods distribution centers to Performance Food Group would neither enable PFG to replace U.S. Foods as a competitor nor counteract the significant competitive harm caused by the merger.

According to the FTC, even with the addition of 11 distribution centers, PFG would not approach the scale or competitiveness of U.S. Foods today, and therefore would not restore the competition eliminated by this merger.

The following state attorneys general have 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.

The FTC vote to issue the administrative complaint and to authorize staff to seek a temporary restraining order and preliminary injunction in federal court was 3-2, with Commissioners Maureen K. Ohlhausen and Joshua D. Wright voting no. The administrative trial is scheduled to begin on July 21, 2015.