Food service distributor Sysco Corporation (NYSE: SYY), announced it would end its $8.2 billion acquisition of U.S. Foods due to anti-trust issues claimed by the Federal Trade Commission (FTC).
Sysco Corp. originally intended to acquire U.S. Foods in December 2013, however, the FTC alleged that the merger would result in unfair competition, controlling 75% of the national food service market.
A judge of the U.S. District Court for the District of Columbia granted the FTC’s request for a preliminary injunction, revealing that the merger would lead to higher prices and reduced competition for food distribution consumers such as restaurants and hotels. State attorneys in other states – California, Illinois, Iowa, Maryland, Minnesota, Nebraska, Ohio, Pennsylvania and Tennessee – have joined the FTC supporting their case.
Although the company ensured that the deal would create additional benefits for consumers by providing better services at a lower cost, the FTC was not convinced. In addition, Sysco contrived a deal to sell 11 distribution centers to Performance Food Group (PFG), the third largest U.S. food distributor. But the FTC would not budge their decision, believing that the merger will dominate the competition and take over the food distribution industry.
The company announced it would buy back $3 billion worth of stocks within the next two years.
According to Sysco’s Chief Executive, Bill DeLaney, the company has decided to abandon the deal, given that it would be the best of interest for its shareholders to move on. Despite the large loss, DeLaney further asserts that the merger would have been a well strategic decision; disappointed by their ineffectual attempt.
Sysco will be required to pay a breakup fee of $300 million to U.S. Foods and $12.5 million to PFG, putting a huge toll on the company.
“Sysco and U.S. Foods’ decision to abandon the transaction is a victory for both competition and consumers. The evidence shows that Sysco and US Foods were strong rivals in broad line food distribution whose combination would have harmed consumers,” said Debbie Feinstein, director of the regulator’s Bureau of Competition.