) 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. (
), Supervalu Inc. (
) and Burcon Nutrascience Corp. (
). All of them holds a Zacks Rank #2 (Buy).
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SYSCO CORP (SYY): Free Stock Analysis Report
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FLOWERS FOODS (FLO): Free Stock Analysis Report
BURCON NUTRA CP (BUR): Get Free Report
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