Federal regulators ignored many local competitors in its claim that the proposed merger of Sysco and US Foods would significantly reduce competition and raise prices, lawyers for Sysco argued Friday.
Sysco’s lengthy attempt to buy US Foods for $3.5 billion was dealt a blow Thursday when the Federal Trade Commission, on a 3-2 vote, sought to block the deal along with 11 attorneys general.
The FTC claimed the takeover would violate antitrust laws by significantly reducing competition nationwide and in 32 local markets.
In the Chicago area, for example, Sysco and US Foods together control 83 percent of the market for local and regional customers, the lawsuit alleges.
The agency will seek a temporary restraining order and a preliminary injunction to prevent the deal from closing.
During a news conference Friday, Sysco lawyers took issue with the FTC’s claim that combined Sysco-US Foods would have a 75 percent share of the U.S. market for what it calls broadline distribution services, or distributing food products with frequent and flexible delivery, customer service and other services such as menu planning.
The lawyers claimed no national market for food service distribution exists, and that customers have many choices.
“If you’re in Chicago and you need food delivered, you can look at the broadline suppliers, you can look at local suppliers — there are a lot of them. There is no national market. It is pure mythology,” said Richard Parker, an attorney from the O’Melveny & Myers law firm representing Sysco. Parker was lead trial counsel with another recent high-profile antitrust case, the merger of American Airlines with US Airways, a dispute that was ultimately settled with the merger proceeding.
“There are local companies in each and every market that constrain our price and that provide options, alternatives to customers,” Parker said. “In challenging the merger of Sysco and US Foods, the commission simply got it wrong. … This transaction is pro-competitive. It’s good for customers, it’s good for the United States and we proceed to court with confidence.”
Another Sysco attorney, Damian Didden, of the Wachtell, Lipton, Rosen & Katz law firm, posed the question that if the merger really would create 75 percent market share, how could two of five FTC commissioners fail to find a reason to believe the merger was anti-competitive?
He also noted that according to the FTC’s own merger guidelines, market share is not the only analysis in deciding whether a merger is anti-competitive.
“In this case, the market share seems to be the beginning, middle and end of the analysis for the government,” Didden said.
Lawyers also noted Sysco would voluntarily divest itself of 11 distribution centers by selling them to competitor Performance Food Group.
Sysco lawyers said the food companies are no longer in negotiations with the FTC, and that a federal court hearing on the injunction likely will take place in the next 60 to 90 days.
Attorneys general from California, Illinois, Iowa, Maryland, Minnesota, Nebraska, Ohio, Virginia, Pennsylvania, Tennessee and the District of Columbia joined the FTC’s antitrust suit.
“The loss of competition between Sysco and US Foods would raise costs for their customers and ultimately for anyone purchasing food served at hospitals, schools, hotels and restaurants,” Illinois Attorney General Lisa Madigan said in a statement.
Houston-based Sysco announced its plan to buy US Foods in December 2013.