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What distribution options would be left after a Sysco-US Foods merger?

A federal judge on Tuesday indicated that how he interprets the food-distribution marketplace will be the key factor in deciding whether to block the planned $3.5 billion merger of rivals Sysco Corp. and US Foods Inc.

U.S. District Judge Amit Mehta heard opening statements for an expected seven days of hearings on the Federal Trade Commission’s challenge to the merger, a rare event in which the government and companies face off in court over the details of a planned tie-up.

The proposed deal would combine the two largest U.S. companies that distribute ingredients and supplies to restaurants, schools and other customers that serve food.

The FTC sought to portray the two as in a distinct league from other industry participants such as regional, local and specialty-food distributors. Those smaller operations can’t replace competition that will be lost by the merger, and both large national customers and local food-service businesses will be harmed if Sysco and US Foods combine, FTC lawyer Stephen Weissman told the judge.

Lawyers for the companies said the market was large and sprawling, with more than 15,000 businesses of all sizes competing to distribute food to restaurants and other customers.

Restaurants use a variety of different types of suppliers and would take their business elsewhere if a combined Sysco-US Foods raised prices after the merger, Sysco lawyer Richard Parker said. Sysco and US Foods have $65 billion in annual revenue.

Judge Mehta interrupted the lawyers on several occasions, with questions and observations about the case. The judge noted the FTC’s case against the merger is built in part on distinguishing between different modes of distribution for food supplies. And he wondered how he was supposed to factor in wholesale cash-and-carry stores such as Restaurant Depot, where restaurants and other businesses can go and buy the goods at competitive prices.

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