Sysco and US Foods Mega-Merger Update

While the Federal Trade Commission is conducting its review of the proposed sale and merger we wondered with all the reported opposition is anyone in favor of this transaction?  Turns out some independents are “eager to take a bite out of Sysco” as reported in the Deal Pipeline.  They may have even mentioned this to the FTC stating they have no competitive concerns about the merger…they believe this might be an opportunity to “pick up business.”

They seem to think that many US Foods customers would be more than willing to seek out the independents rather than do business with Sysco…isn’t that why they’re with US Foods to begin with? In addition to customers, there seems to be a good chance that the independents could throw a life line to those top sales performers and managers who are on the hunt for something new before the axes start to fall.  Do we need to tell you that Foodservice is a relationship business?

The co-ops of regional distributors like DMA (Distribution Market Advantage Inc.) are in favor of the sale stating their participants are mostly family owned, well run, able to add capacity quickly, and “more nimble suppliers that can deliver perishables with a much quicker turnaround” surely a jab at Sysco being spanked for storing perishable foods in unrefrigerated sheds.

In fact the anticipated loss of revenue for these independents is nowhere to be found, they are experiencing increased business ($15million annually up from $5million) and believe Sysco will only have about 20% market share post-merger. The Wall Street Journal recently reported that merger review might get a boost from the increased business of independents.  They cited Jethro Holdings LLC, while still very small at $8billion in annual sales compared to Sysco/US Foods; it’s not the actual number but the growth that is significant.  So would the proposed merger woes get a boost from all the good news out of Jethro and the likes of DMA?  We wonder.

The FTC asked for additional info from all parties in February on this merger which would create what they believe might be a 25-35% market share for Sysco and they got it on the plus side from many independents.  They are still sifting through all the information from critics of the deal, public interest group opposition, and even the Food &Water Watch group.

As recently as late September, The Wall Street Journal reported that; The Federal Trade Commission is considering a possible antitrust lawsuit to block the planned merger of Sysco and US Foods Inc., concerned that combining the nation’s two biggest food suppliers to restaurants, schools and other institutions could threaten competition, according to people familiar with the matter.

Though no decision has been made, the WSJ seems to think a decision could come within weeks. There is a suspicion that this may wind up at the Justice Department, which shares antitrust authority. The department last year filed lawsuits challenging major mergers in the airline and beer industries. Both cases ended with settlements before trial that allowed the deals to go forward.  Interesting.

So while all that is happening, all what you may be asking?  People at The Street were  reporting that Food & Water Watch continue to warn that the deal “substantially increases Sysco’s market power” allowing it to exercise monopoly power and raise prices on food service operations and handing it monopsony power (the ability to force price concessions on suppliers) that would force food manufacturers to accept price cuts.  The influence wielded by the Food & Water Watch remains to be seen.

Sysco continues to repeat the party line; more competitive, more innovative and better differentiated, all with the goal of helping our customers succeed.  Stay tuned…