Sysco-US Foods Merger Faces Hold Up

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Sysco Corp. announced in December 2014 that they would buy US Foods for $3.5 billion to create a food distributor monster company. The deal would combine two of the largest food distributors in the U.S. After the announcement, Sysco’s shares jumped by 25 percent. Investors obviously saw the value in Sysco’s supply chain and US Foods technology combination. However, the merger is now being help up by the Federal Trade Commission.

Chief Executive Officer of Sysco, William J. DeLaney, acknowledged that the Federal Trade Commission would most likely take a close look at the merger before it was complete. He was fully expecting the need for some divestitures. However, he still defended the deal, citing that it is the best option for Sysco to grow in a mature market. DeLaney said, “Even with some divestitures, we still see this is a very attractive deal… We wouldn’t be going forward if we didn’t think we’re going to have a successful outcome here.”

According to the Wall Street Journal, Sysco recently agreed to sell 11 US Foods distribution centers to level the playing field with competitors. The value of the distribution centers is around $4.6 billion. That’s twice as much money as Sysco had originally planned to divest to win over regulatory approval. Despite this agreement, the government could still sue to block the merger. Right now, the Sysco-US Foods merger is at a standstill.

Sysco must now present a new plan to the Federal Trade Commission and get approval before the merger can continue. Some of US Foods distribution centers and services are being sold to Performance Food Group. It’s likely that Sysco will have to offer support for the transition period to get approval for the merger. After all of the divestigures, Sysco still stands to get net gains of $600 million per year because of the merger.

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