By Chelsey Dulaney
Sysco Corp. said Monday it is walking away from its planned
acquisition of US Foods Inc. after a federal judge issued a
preliminary injunction against the deal last week amid antitrust
concerns.
The deal, announced in December 2013, would have combined the
nation's two largest food distributors, which provide ingredients
and a range of other supplies to restaurants, hotels, schools and
other food-service operations.
Sysco said it will pay privately held US Foods a breakup fee of
$300 million. The company also said it will spend another $3
billion buying back shares over the next two years and will redeem
$5 billion in merger-related debt.
Sysco shares, down 3.3% this year, added 1.6% to $39 a share in
premarket trading.
The deal had drawn scrutiny from the Federal Trade Commission,
which filed a lawsuit in February challenging the transaction on
antitrust grounds.
The FTC argued the merger would leave customers large and small
vulnerable to higher prices and reduced levels of service. The
companies argued their tie-up would help them improve service and
become more efficient, while cutting hundreds of millions of
dollars in costs.
Last week's injunction was the latest in a string of
merger-enforcement matters in which antitrust officials appointed
to the FTC and the Justice Department by President Barack Obama
have flexed their muscles to block or pare back mergers they
believed would harm competition.
"After reviewing our options, including whether to appeal the
court's decision, we have concluded that it's in the best interests
of all our stakeholders to move on," said Bill DeLaney, Sysco's
chief executive. "We believed the merger was the right strategic
decision for us, and we are disappointed that it did not come to
fruition."
The termination also cancels Sysco and US Foods's agreement to
sell 11 distribution centers to the industry's third-largest
company, Performance Food Group Inc. Sysco and US Foods agreed to
sell the assets to PFG in a bid to address the FTC's antitrust
concerns.
Sysco will pay PFG a $12.5 million breakup fee.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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