Fed Judge Blocks Sysco-U.S. Foods Merger For Now

BERLIN — The potential merger of two foodservice distribution giants was dealt a significant setback this week when a federal judge blocked the transaction pending further review.

Maryland Attorney General Brian Frosh on Tuesday announced U.S. District Court Judge Amit Mehta has issued a temporary injunction blocking the merger between Sysco and U.S. Foods, the two largest foodservice distribution companies in the country. The potential merger has strong local implications because Sysco and U.S. Foods are the major suppliers for many of the restaurants and food service operations in Ocean City and throughout Worcester County. In addition, Sysco Eastern Maryland is based in Pocomoke and employs hundreds in Worcester, although the implications on the local operation are not known.

The potential Sysco-U.S. Foods merger is valued at around $8.7 billion. The companies are the two largest foodservice distributors in the country and currently compete with each other to sell and deliver a wide array of goods to restaurants, hotels, hospitals, schools and other facilities.

In March, Frosh joined colleagues from nine other states along with the Federal Trade Commission in an attempt to block the merger, citing the potential for lack of competition, higher prices and diminished service. The FTC filed a complaint in U.S. District Court attempting to block the proposed merger, alleging it would reduce competition by creating an entity that would control 75 percent of the national market, including 80 percent of the market in Maryland.

When the federal judged announced the temporary injunction on Tuesday, Frosh said it was a victory for Maryland’s restaurants and foodservice operations along with those who enjoy them.

“This is terrific news for anyone who eats, and that means all Marylanders,” he said. “This proposed merger would reduce competition and lead to higher prices for Marylanders who dine out, as well as for food service providers.”

The FTC was also claiming a victory for competition, stable prices and quality service.

“The court’s ruling today temporarily blocking Sysco’s proposed acquisition of U.S. Foods will preserve competition in both local and national broad line food service distribution markets,” said the FTC’s Bureau of Competition Director Debbie Feinstein. “We look forward to proving at trial that this deal would lead to higher prices and diminished service for customers, including restaurants, hospitals, hotels and schools.”

Meanwhile, Sysco officials were disappointed with the judge’s decision, claiming the potential merger would ultimately be good for foodservice providers as well as consumers.

“While we respect the court’s decision, we are profoundly disappointed with this outcome,” said Sysco President and CEO Bill DeLaney. “We diligently pursued this transaction for nearly two years because we strongly believed the merger of Sysco and U.S. Foods would be pro-competitive and good for customers, associates and shareholders.”

DeLaney said the Sysco leadership and its shareholders would regroup and consider whether to continue to pursue the merger.

“We will take a few days to closely review the court’s ruling and assess our legal and contractual obligations, including the merits of terminating the merger agreement. We will provide additional clarity in the coming days,” he said.