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Judge deciding Sysco-US Foods deal presses for effects on costs

The judge deciding the fate of the proposed Sysco-US Foods merger was careful not to reveal whether he’s leaning toward blocking the deal or letting it proceed, according to observers who were in the Washington, D.C., courtroom.

Arguments for and against the $8-billion merger concluded yesterday with more than three hours of questioning of both parties by Judge Amit Mehta. Among the matters he pursued was how much choice restaurateurs would have after the industry’s two largest broadline distributors became one. 

Mehta pressed the lawyer for the Federal Trade Commission, the agency trying to block the merger because it allegedly constrains competition, for details on how it determined that Sysco and US Foods currently control 75 percent of the national foodservice-distribution market. The FTC has said competition would be particularly curtailed in 32 markets. Are you sure?, asked Mehta.

But he also observed that an overstatement of the numbers would not allay restaurateurs’ fears about having their distribution choices limited and prices raised accordingly. Mehta suggested that the choice they faced post-merger would not be what national broadliner to use, but whether to go with the Sysco-US Foods combination or to cobble together a supply chain of distributors specializing in particular goods, like meat or paper supplies.  “That is what you’re asking me to conclude,” Mehta was quoted by The Wall Street Journal as telling the attorney for Sysco.

The distributor’s legal team had assured the judge that local competition would thwart any attempts by a combined Sysco-US Foods to raise prices.

The CEO of the nation’s Number 3 broadline distributor, Performance Food Group, has said he favors the deal. Sysco and US Foods have agreed to sell a number of their locations to PFG at an attractive price if the merger is approved.

Sysco said early in legal proceedings that it would explore other alternatives with US Foods if Judge Mehta blocks the merger. But US Foods said days later that it would drop attempts at a combination if the deal is red-lighted. The cost of scuttling the deal for Sysco alone has been estimated at $1 billion.

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