By Brent Kendall
WASHINGTON--The Federal Trade Commission on Thursday sued to
block Sysco Corp.'s planned acquisition of rival U.S. Foods Inc., a
long-awaited move that sets the stage for a major antitrust battle
in court.
The FTC, in a 3-2 vote, alleged the proposed tie up of the
nation's two largest food distributors would create a dominant
national food service distributor that could raise prices and
reduce service for customers.
The two companies provide food and related supplies to
restaurants and other institutions like hospitals and schools.
Postmerger, the combined companies were expected to generate more
than $65 billion in annual revenue. Sysco and U.S. Foods have said
the $3.5 billion merger would allow them to improve service and
achieve hundreds of millions of dollars in cost savings.
The commission had been investigating the merger for more than a
year. Lengthy settlement talks between the two sides failed to
produce an agreement to allow the merger. Sysco recently offered to
address FTC concerns about competition by selling off a large
package of assets that generate $4.6 billion in annual revenue, far
above its original $2 billion divestiture commitment.
A round of meetings last week between the companies and the
FTC's five commissioners failed to spark further settlement
discussions.
The FTC's case will move forward amid a partisan split on the
wisdom of filing a lawsuit. The FTC's three Democratic
commissioners voted in favor of the merger challenge, while the
commission's two Republicans voted against it.
Sysco in recent days began escalating its preparations for a
government lawsuit, hiring top antitrust lawyers who are former FTC
officials to lead the company's defense. Sysco has said it could
keep the merger agreement in place long enough for any case to go
to trial.
The companies couldn't immediately be reached for comment.
The lawsuit is the FTC's highest-profile merger challenge since
the commission in 2007 sought to stop Whole Foods Market Inc. from
acquiring rival organic supermarket chain Wild Oats Markets, a case
brought under Republican leadership.
Since Obama administration nominees took the helm at the FTC in
2009, the agency has won some notable hospital-merger cases, but it
hadn't brought a marquee case.
Recent headline-grabbing merger lawsuits under the Obama
administration have come from the Justice Department, which shares
U.S. antitrust authority.
The FTC's decision to sue doesn't necessarily foreclose the
possibility of a settlement down the road, a point underscored by
recent Justice Department cases. The department in 2013 filed major
antitrust lawsuits challenging mergers in the airline and beer
industries. Both cases ended up settling before trial, with the
government agreeing to allow the mergers after the companies
involved made additional concessions.
Write to Brent Kendall at brent.kendall@wsj.com
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