By Brent Kendall and Annie Gasparro
The Federal Trade Commission is nearing the finish line in its
yearlong consideration of whether to allow the proposed merger of
rival food-service companies Sysco Corp. and U.S. Foods Inc., but
the decision still could go either way.
The companies have been engaged in detailed settlement talks
with FTC staff over a way to resolve the agency's antitrust
concerns about the $3.5 billion deal. But people familiar with the
discussions said gaps still exist between the two sides' positions
on what assets, and how many, should be included in a package of
divestitures to preserve a competitive food-distribution
marketplace.
If the parties can't bridge those gaps, it remains possible the
FTC could bring a civil lawsuit challenging the merger, these
people said. Details about the companies' offer and the agency's
specific concerns couldn't be learned.
FTC staff lawyers and economists are expected to present their
recommendations to the agency's five commissioners soon, and top
company representatives are making plans to meet personally with
individual commissioners to make their case, according to people
familiar with the review process.
The five-member FTC comprises three Democratic commissioners and
two Republicans. A majority would have to agree on any course of
action.
Firms like Sysco and U.S. Foods buy food and other supplies like
cutlery and paper products in bulk from manufacturers and then sell
them to restaurants, schools and other institutions. The companies
have enormous scope, with Sysco alone serving roughly 425,000
customers across the country. They are the largest two players in
the industry and would control at least a quarter of the market
after the merger.
Sysco and U.S. Foods say the deal will help them improve service
and be more efficient. Critics of the planned merger say the two
firms have been a check on one another, with most smaller
competitors offering a narrower range of products and services.
When the companies announced the deal, they committed to
offering up to $2 billion in asset sales to satisfy antitrust
enforcers. The companies' latest offers exceed that amount, a
person familiar with the offer said.
While the talks with FTC have proceeded, Sysco and U.S. Foods
have been deep in negotiations with competitors, including their
next biggest rival, Performance Food Group, about buying assets the
companies could be required to divest.
The FTC's deliberations have taken longer than the companies
anticipated. The Wall Street Journal reported in September that the
FTC was considering a possible lawsuit to block the merger.
A spokesman for Sysco said the talks with FTC staff are ongoing
and progressing as planned. In November, the company said it
expected the deal to close no sooner than the first quarter of this
year. An FTC spokeswoman declined to comment.
The Sysco-U.S. Foods deal has presented the commission with
competing considerations. The companies say the merger will allow
them to achieve hundreds of millions of dollars in annual cost
savings. But with the increased size of the combined firm, even a
small increase in prices postmerger could have a significant
economic effect given the many customers the companies serve.
Write to Brent Kendall at brent.kendall@wsj.com and Annie
Gasparro at annie.gasparro@wsj.com
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