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Will the Sysco and US Foods Merger Happen?

Will the Sysco and US Foods Merger Happen?


HOUSTON, TX and ROSEMONT, IL Since the announcement of the $8.2 billion merger between Sysco and US Foods, the question that seems to be on many foodservice industry professionals’ minds is how these combined businesses will affect the competitive market. It’s clear that these companies are the two biggest businesses in the food distribution industry, representing a combined total of 27% of the market. With such a large, widespread grasp of the market, is it possible this merger might not happen after all? While both companies understand the Federal Trade Commission will scrutinize the merger, there are a few antitrust consultancies that feel the deal is still likely. The approximate combined 27% market share is a large number indeed, but it’s not large enough to be considered a monopoly. At worst, investors say that the FTC may simply force Sysco to divest assets in areas where there’s too much geographical overlap, according to Reuters and CNBC. A Barclays report states that a number of industry experts believe that Sysco would have to divest approximately 15 facilities, or $6 billion of revenues, which is far more than the $2 billion mentioned in the merger agreement. Bill DeLaney, Sysco’s CEO, says that while the FTC will certainly review the deal, there are about 15,000 private companies involved in the U.S. food distribution industry, including regional and local food distributors and wholesale outlets. With that many companies, perhaps the merger may not affect the competitive market and could be beneficial overall. Sources tell DeliMarket TV that the merger shouldn’t concern larger suppliers, but it could possibly have an effect on some smaller suppliers who have a greater allocation for their customer base. On one hand, consider those folks in the industry that want to have diversification in their portfolio of customers. A merger between Sysco and US Foods possibly limits who they can sell product to - especially since the next largest competitor only has 4% market share. For example, independent restaurant customers may find other distributors rather than allow more concentration, according to a Barclays report. On the other hand, there are others who welcome the merger because it gives them a unique opportunity to grow their business thanks to the bigger market share. Charley Wilson, a spokesman for Sysco, said that the company operates in a “highly competitive and fragmented space” and that merging with US Foods will enable Sysco to take “meaningful cost” out of the system, making the company more competitive, according to Indianapolis Business Journal. The American Antitrust Institute (AAI) recently submitted a letter to the FTC, noting that the merger would “likely result in higher prices; lower quality, reliability, and food safety; and less innovation – to the detriment of foodservice outlets and consumers of food that is prepared away from the home.” The letter also states that the merger “raises the specter of enhanced buyer market power and higher entry barriers for smaller, innovative or alternative food producers and systems.” Several states have already been asked to participate in the antitrust review process, as per the standard in any merger deal. Last week, the FTC requested additional documents on the merger to begin its review of the deal, according to Wall Street Journal. It still remains to be seen how the FTC will react to these growing concerns. What will be the outcome for this merger? Stay tuned to DeliMarket TV as we continue following the merger between Sysco and US Foods. Sysco US Foods
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