The U.S. Federal Trade Commission moved Thursday to block the $3.5 billion merger of the nation’s two largest food distributors, saying Sysco‘s acquisition of debt-ridden US Foods would violate antitrust laws.
In an antitrust complaint filed Thursday, the FTC said the deal, which was announced in December 2013, would be to the detriment of consumers.
“This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline foodservice distributor,” Debbie Feinstein, the director of the FTC’s Bureau of Competition, said in a news release. “Consumers across the country, and the businesses that serve them, benefit from the healthy competition between Sysco and US Foods, whether they eat at a restaurant, hotel, or a hospital.”
According to the FTC, the combined Sysco/US Foods would account for 75% of the national market for broadline distribution services and the next-largest distributor would have only an 11% share of the market.
The FTC said it would seek a court injunction to prevent the companies from completing the merger and to maintain the status quo pending the outcome of the administrative complaint.
Sysco had been in talks with the FTC to salvage the merger. In hopes of overcoming the commission’s concerns, Sysco and US Foods had offered to sell 11 distribution centers with $5 billion in sales.
But according to the FTC, the proposed divestiture would not “counteract the significant competitive harm caused by the merger.”
“[T[he extraordinarily high post-merger market share, the market-concentration level, and the increase in concentration in the market for broadline foodservice distribution services sold to national customers render the merger presumptively unlawful,” the FTC’s complaint says.
Sysco will contest the FTC’s action, saying it was based on “an erroneous view of the competitive dynamics of the foodservice distribution industry.”
“The facts are strongly in our favor and we look forward to making our case in court,” CEO Bill DeLaney said in a news release, adding that the merger “has always been about serving customers better and driving costs out of the system.”
Sysco stock fell about 3.4% to $38.56 in trading Thursday.
The commission voted 3-2 to initiate an antitrust proceeding and seek an injunction. The administrative trial is scheduled to begin on July 21.