Facing a possible antitrust lawsuit, Sysco is in talks with the Federal Trade Commission to salvage its $3.5 billion deal to acquire debt-ridden US Foods, the New York Post reported.

SyscoThe proposed merger, which was announced in December, would combine Sysco, the nation’s largest food supplier to restaurants and schools, with its closest rival. The combined company would have 25% of the food-distribution market.

According to the Post, the FTC is expected to decide by the end of the month whether to sue to block the deal. Deborah Feinstein, the agency’s head of competition, has told the five commissioners she is ready to bring a lawsuit unless certain conditions are met, a source told the Post.

A source close to Sysco said there could be some wiggle room to save the merger. The company has previously pledged to Sysco to divest operations with annual revenues totaling up to $2 billion, if required by the FTC.

Critics of the deal, the Post noted, fear that a combination of Sysco and US Foods would have too much market power and would result in higher prices for the thousands of restaurants, hospitals and hotels that they supply on nationwide contracts. The companies provide everything from pre-scrambled eggs for school meals to truffle mousse desserts for high-end restaurants.

The Post said one possible obstacle to a settlement with the FTC is that most of the companies’ contracts are at-will deals. As a result, it would not be easy to force either Sysco or US Foods to sell off specific sectors or geographic regions as it would be with a cable-TV deal.

“When you are dealing with warehousing and deliveries, it is not clear to me it can be solved,” a critic of the merger told the Post.

The FTC also may want to avoid a repeat of what happened when it required Hertz to sell its Advantage Rent A Car business as part of a settlement of charges that Hertz’s $2.3 billion acquisition of Dollar Thrifty would have been anticompetitive. Advantage went bankrupt months later.

Source: New York Post Sysco plying FTC to save US Foods deal

Photo: flickr user karen_2873, CC BY-ND 2.0

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