By Brent Kendall
WASHINGTON--A federal judge on Tuesday indicated that how he
interprets the food distribution marketplace will be the key factor
in deciding whether to block the planned merger of rivals Sysco
Corp. and US Foods Inc.
U.S. District Judge Amit Mehta heard opening statements for an
expected seven days of hearings on the Federal Trade Commission's
challenge to the merger, a rare event in which the government and
companies face off in court over the details of a planned
tie-up.
The proposed deal would combine the companies that distribute
ingredients and supplies to restaurants, schools and other
customers that serve food.
The FTC sought to portray the two as in a distinct league from
other industry participants such as regional, local and specialty
food distributors. Those smaller operations can't replace
competition that will be lost by the merger, and both large
national customers and local food-service businesses will be harmed
if Sysco and US Foods combine, FTC lawyer Stephen Weissman told the
judge.
Lawyers for the companies said the market was large and
sprawling, with more than 15,000 businesses of all shapes and sizes
competing to distribute food to restaurants and other customers.
Restaurants use a variety of different types of suppliers and would
take their business elsewhere if a combined Sysco-US Foods raised
prices after the merger, Sysco lawyer Richard Parker said.
Judge Mehta interrupted the lawyers on several occasions, with
questions and observations about the case. The judge noted the
FTC's case against the merger is built in part on distinguishing
between different modes of distribution for food supplies. And he
wondered how he was supposed to factor in wholesale cash-and-carry
stores such as Restaurant Depot, where restaurants and other
businesses can go and buy the goods they need at competitive
prices.
"Really that seems to me where the rubber meets the road," he
said.
The judge suggested the case presented unique issues and was
more difficult to analyze than some other recent merger cases
because Sysco and US Foods sell so many different types of products
and services.
Judge Mehta also asked lawyers for the companies whether there
were at least some large national food service customers who
required nationwide distribution networks offered by Sysco and US
Foods, but not by other distributors. The companies' lawyers said
the FTC misunderstood how such large customers do business.
Tuesday's session was held in open court, but because both sides
relied upon confidential business material in their presentations,
the lawyers sometimes spoke in code, referring only generally to
detailed business documents that were being shown to the judge but
not the audience.
The FTC is asking Judge Mehta to issue a preliminary injunction
blocking the deal while it holds a more detailed in-house trial in
July. The judge's ruling, however, is likely to be crucial to
whether the merger survives.
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