The Sysco merger with US Foods is experiencing a major hiccup after a federal judge ruled that the said transaction should be stopped and subjected to further review, Reuters reports. The said merger is valued at $3.5 billion.
When asked about the ruling, Judge Amit Mehta commented to CNBC, “The Federal Trade Commission has shown that there is a reasonable probability that the proposed merger will substantially impair competition in the national customer and local broadline markets and that the equities weigh in favor of injunctive relief.”
What the FTC argues is that the merger will allow a newly formed company to control as much as 75% of the food distribution market since Sysco and US Foods represent the industries’ top one and two companies, respectively. And to address this concern, Reuters has also learned that Sysco offered to sell about 11 of its distribution centers to the Performance Food Group, the industry’s 3rd largest company. This will enable them to become a “new national competitor.”
In response to the ruling, Sysco has released a statement saying, “While we respect the Court’s decision, we are profoundly disappointed with this outcome. 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. Nevertheless, we certainly understood this outcome to be possible and have been developing plans for the business moving forward. We will take a few days to closely review the Court’s ruling and assess our legal and contractual obligations, including the merits of terminating the merger agreement. This work will be conducted in close collaboration with Sysco’s Board of Directors and the primary owners of US Foods. We will provide additional clarity in the coming days.”
Meanwhile, in a statement to CNBC, US Foods’ John Lederer issued a response to the ruling, saying, “We are ready for whatever comes next. We have the talent, passion and financial foundation to take this company to the next level for our customers and for our employees.”
In a report by the Associated Press that was published in The Salt Lake Tribune, it was found that shares of Sysco Corp. dropped by 2.6 percent in the aftermarket trading following the announcement of the ruling.