NYT: Sysco Terminates Deal With US Foods
Sysco Terminates Deal With US Foods
By MICHAEL J. de la MERCED JUNE 29, 2015
Sysco’s headquarters in Houston. The Federal Trade Commission said Sysco’s merger with US Foods would lead to higher prices and worse service for customers like restaurants and schools. Credit David J. Phillip/Associated Press
Sysco said on Monday that it was calling off its proposed merger with US Foods, days after a federal judge halted the union of the companies, the country’s two biggest food distribution companies.
The move was expected after the judge, Amit P. Mehta of the Federal District Court for the District of Columbia, sided with the Federal Trade Commission in determining that putting together the two companies would harm consumers.
Sysco and US Foods announced their $3.5 billion merger in December 2013, then spent well over a year working on an integration plan that would pass muster with government regulators. Together, the two companies would have had some $65 billion in annual revenue.
But in February, the F.T.C. sued to block the deal, arguing that the merger would lead to higher prices and worse service for customers like restaurants and schools.
It was the latest instance of the Obama administration flexing its antitrust muscles, having successfully blocked deals by the likes of Comcast and AT&T.
By the time Judge Mehta ruled in favor of the F.T.C. last week, the die was all but cast, with US Foods saying in court that it would move to abandon the deal if the federal court handed down a preliminary injunction.
“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,” Bill DeLaney, Sysco’s chief executive, said in a statement. “We believed the merger was the right strategic decision for us, and we are disappointed that it did not come to fruition. However, we are prepared to move forward with initiatives that will contribute to the success of Sysco and our stakeholders.”
By calling off the merger with US Foods, Sysco will also terminate a related deal to sell some of US Foods’ assets to the Performance Food Group that was meant to assuage antitrust concerns.
As part of its agreements with both companies, Sysco will pay breakup fees of $300 million to US Foods and $12.5 million to Performance Food.
To make it up to shareholders, Sysco plans to buy back $3 billion worth of its stock over the next two years. It will also pay back the $5 billion in debt that it borrowed to finance the US Foods deal.