Will Sysco Win Antitrust Lawsuit on US Foods Deal? - Analyst Blog

Shutterstock photo

Per Bloomberg, Sysco Corporation ( SYY ) expects to defeat a U.S. antitrust lawsuit seeking to block its proposed merger with food distribution company US Foods, Inc. Shares of the food company climbed 2.85% on Feb 20 as Sysco believes that the Federal Trade Commission ('FTC') was wrong in concluding that the merger is anticompetitive.

On Feb 19, the U.S. government filed a lawsuit to block Sysco-US Foods proposed merger (announced in Dec 2013), saying that the deal would eliminate competition in the sector.

Sysco's merger with US Foods has been controversial from the beginning. The FTC was concerned that the merger would reduce competition nationwide and in local markets for foodservice distribution, as these two companies happen to be the only two food distributors to deliver food and other supplies to hotels, hospitals and fast food restaurants. A combination of these two companies would control 75% of the national market, according to the FTC, and would give them enough power to control or raise prices for customers.

Sysco's officials challenged the commission's view and stated that competition level will not be affected as their business is based on local markets, where competition is fierce.

Sysco has been trying to resolve FTC's concerns over the past 12 months related to its acquisition of US Foods for approximately $8.2 billion, inclusive of debt. Not only this, in order to seek FTC's approval for the merger, Sysco, on Feb 2, agreed to sell 11 facilities of US Foods to the Performance Food Group, contingent upon the closing of its proposed merger with US Foods. However, FTC still finds this offer inadequate as these divestitures will not help to restore the lost competition.

Sysco is now left with no other better option but to proceed to court to fight for US Foods. The deal is important for both the companies, as together they are expected to improve efficiencies, particularly in supply chain, merchandising and general and administrative activities. The merger will give Sysco increased size and scale and will also provide significant cost savings opportunities. In fact, the merger would help create one of the largest food companies in the country.

Sysco now carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked companies in the food industry include Flower Foods Inc. ( FLO ), Supervalu Inc. ( SVU ) and Burcon Nutrascience Corp. ( BUR ). All of them holds a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

SYSCO CORP (SYY): Free Stock Analysis Report

SUPERVALU INC (SVU): Free Stock Analysis Report

FLOWERS FOODS (FLO): Free Stock Analysis Report

BURCON NUTRA CP (BUR): Get Free Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: SYY , SVU , FLO , BUR

More from Zacks.com




Equity Research
Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com