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Sysco-US Foods: What now?

A federal judge’s decision to block the Sysco-US Foods merger hit the phone of one attendee at FARE, a conference for foodservice operators, while he was riding last night on a shuttle to the host hotel from an off-site party. He was so startled that he shared the news with fellow riders, then added, “Hey, tonight we can all go to bed knowing that nothing’s going to change now.”

Or will it? Sysco’s $8.2-billion purchase of US Foods was thwarted by a “preliminary injunction,” in legal-ese, but does that mean the deal is dead?  There’s still the option of challenging the temporary ruling in a full-fledged legal fight.

No sooner did Judge Amit Mehta hand down his decision than Sysco issued a statement, alerting the industry and investors that it would devote a few days to exploring its options in concert with its board and US Foods’ owners. That rethinking would include a consideration of dropping the deal, CEO Bill Delaney specified.

US Foods EVP David Schreibman had said during the trial that his company would not be willing to persevere through further legal moves and a continuation of the uncertainty. His evident frustration with a deal two years in the lurch clearly does not bode well for a resumption of the courtship.

Nor does the somewhat gloating statement issued by the government body that filed suit to block the merger. “We look forward to proving at trial that this deal would lead to higher prices and diminished service for customers, including restaurants, hospitals, hotels, and schools,” said Debbie Feinstein, director of the Federal Trade Commission’s Bureau of Competition.

The FTC’s legal challenge had pivoted on how much a combination of the industry’s two largest distributors would inhibit competition to supply the nation’s restaurants and onsite foodservice facilities with supplies that come in through the back doors of their kitchens. Judge Mehta agreed with the contention that the combination would give one super-distributor the control over 75 percent of some markets’ supply chains.

Sysco was contesting that assertion right up to the time Judge Mehta was dotting his i’s and crossing his t’s. Tom Bene, president of Sysco’s foodservice operations, stressed Monday at FARE that 16,000 broadline distributors serve the nation’s 1 million foodservice outlets. Left unsaid was the question of how combining two of those suppliers would throttle competition.

Wednesday morning at FARE, Bene addressed the judgment that had been handed down less than 12 hours earlier. “It’s amazing what 48 hours can do to you,” he said. “While we are obviously disappointed. I wanted you all to know, thank you. Thank you to all of our partners who have supported us for the last 18 months.”

Bene also thanked the employees of Sysco for fulfilling their missions during the uncertainty of the merger attempt.

“As we close this chapter, we have some decisions to make,” he continued. But “we’re incredibly excited about what’s going on in this industry right now.” He pledged that Sysco would serve its needs with “a more customer-focused operation than we ever have been before.”

Sysco did not say when it would air its decision on whether or not to pursue a merger. We will provide additional clarity in the coming days," Delaney said.

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