Dive Brief:
- On the heels of a judge agreeing with the Federal Trade Commission that the deal violated antitrust laws, Sysco Corp said on Monday that it was abandoning plans to merge with US Foods.
- "After reviewing our options…we have concluded that it’s in the best interests of all our stakeholders to move on,” Sysco Chief Executive Bill DeLaney said in a statement. "However, we are prepared to move forward with initiatives that will contribute to the success of Sysco and our stakeholders."
- While the two weeks of court battles leading up to the decision seemed to be neck and neck, U.S. District Judge Amit Mehta said in the public version of his opinion that he decisively sided with FTC. In particular, he agreed with FTC in terms of how to define "the food distribution market for the purposes of deciding whether the merger could harm competition and lead to higher prices for consumers," according to The Wall Street Journal.
Dive Insight:
Sysco could have appealed, but it has already spent $355 million merger-related costs. The failed attempt, which began in 2013, requires Sysco to pay US Foods a breakup sum of $300 million.
"The proposed merger of the country’s first and second largest broadline foodservice distributors is likely to cause the type of industry concentration that Congress sought to curb at the outset before it harmed competition," Judge Mehta wrote.
This is exactly the type of regulatory hurdle Syngenta AG warned Monsanto Co. about when Syngenta twice denied Monsanto's bid to take over Syngenta. Monsanto agreed to divest Syngenta's seed business to ease those concerns, but Syngenta has not officially relented to the deal. Now that the Sysco-US Foods merger has been blocked, this could back up Syngenta's case still more.
Another question for the food industry is how the potential merger between Kraft Foods Group and H.J. Heinz Co., would turn out, a move which will be either approved or disapproved by Kraft shareholders this week. If approved, the two companies, which together would form the fifth-largest food and beverage company in the world and third-largest in North America, may face similar regulatory hurdles.