Sysco US Foods Deal Faces Federal, State Antitrust Probe

Sysco Corp.’s agreement to buy US Foods for $3.5 billion to bolster its preeminence as a food distributor to restaurants across North America is under review by at least two states in addition to federal regulators.

The deal, announced last month, would cement Sysco’s role as the continent’s largest food distributor, expanding its geographic reach and creating supply chain cost savings. The combined company would have about $65 billion in annual sales.

The union will be reviewed by the Justice Department’s antitrust division or the U.S. Federal Trade Commission, said Gina Talamona, a spokeswoman for the Justice Department. A decision hasn’t been made about which agency will conduct the investigation, she said yesterday. Florida Attorney General Pam Bondi and Indiana Attorney General Greg Zoeller are part of a multistate group looking at the deal as well.

The group “is currently reviewing this merger in coordination with federal agencies,” Jenn Meale, a spokeswoman for Bondi, said in an e-mail. She declined to comment further.

We “are working with other states as we examine the potential impact,” said Bryan Corbin, a spokesman for the Indiana Attorney General’s office, of the merger.

Sysco said the acquisition of Rosemont, Illinois-based US Foods will boost its share of the U.S. market to about 25 percent from about 18 percent.

Antitrust Problems

The fact that the Justice Department and the FTC haven’t decided which of them will review the merger is a sign that each sees antitrust problems with the Sysco deal, said Bob Doyle, an antitrust lawyer at Doyle, Barlow & Mazard in Washington.

The delay also means the company is losing time to argue during the initial 30-day review period that the deal isn’t anticompetitive, he said.

“Ideally they would have 30 days and now due to the squabbling they have something less than 30 days,” Doyle said. “If they don’t know who to go to, they’re losing time.”

Sysco fell 1 percent to close at $36.51.

The company has obtained a $4.75 billion financing commitment from Goldman Sachs Group Inc. to fund the transaction. It’s paying $3 billion in common stock and $500 million in cash to US Food owners including private-equity firms KKR & Co. and Clayton, Dubilier & Rice LLC.

Common Practice

Charley Wilson, a spokesman for Houston-based Sysco, said in an e-mailed statement that the company knew the review was under way.

“We are aware that several states have asked to participate in the antitrust review process,” he said. “This is common practice in mergers involving companies that operate in several geographic areas.”

Sysco operates in a “highly competitive and fragmented space,” he said. Merging with US Foods will enable Sysco to take “meaningful cost” out of the system, making the company more competitive, he said.

Lisa Lecas and Michelle Calcagni, spokeswomen for US Foods, didn’t immediately respond to e-mail messages seeking comment on the review.

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