Sysco Corp. said negotiations with antitrust regulators over its planned acquisition of U.S. Foods Inc. have reached a standstill, signaling increasing chances the government could sue to block the marriage of the two largest U.S. food distributors, despite Sysco’s recently proposed agreement to sell 11 US Foods distribution centers to Performance Food Group Co., according to The Wall Street Journal.
The stalemate comes despite Sysco’s proposed agreement announced Monday with rival Performance Food Group Co. to sell the company 11 U.S. Foods distribution centers with a combined $4.6 billion in annual revenue. That is more than double the $2 billion in revenue that Sysco originally planned to divest to win regulators’ blessing, according to The Wall Street Journal.
Sysco Corp. has reached a definitive agreement to sell Performance Food Group 11 US Foods facilities related to its pending merger with US Foods. The divestiture package is contingent on consummation of the proposed merger of Sysco and US Foods announced in December 2013.
"Over the past 12 months, we have worked in good faith with the FTC to help them better understand the highly competitive U.S. foodservice distribution industry and the significant customer benefits that will result from the merger of Sysco and US Foods," said Sysco President and Chief Executive Officer Bill DeLaney. "Unfortunately, the FTC has taken a different view of the potential competitive impacts of the merger. While we respectfully but vigorously disagree with the FTC's analysis, we believe this divestiture package fully addresses its concerns."
Sysco will now present its position, including this proposed remedy, to the five FTC commissioners and seek to obtain their approval.
The agreement calls for Sysco to sell Performance Food Group the following US Foods facilities at the completion of the US Foods transaction: Corona, Calif.; Denver, Col.; Kansas City, Kan.; Phoenix, Ariz.; Salt Lake City, Utah; San Diego, Calif.; San Francisco, Calif.; Seattle, Wash.; Cleveland, Ohio; Las Vegas, Nev.; and Minneapolis, Minn.
In US Foods' most recent fiscal year, these distribution centers generated $4.6 billion in annual revenue. Sysco and Performance Food Group have also have agreed on a comprehensive multi-year transition services agreement to ensure a smooth transfer of assets from US Foods to Performance Food Group by providing various support services and personnel to help Performance Food Group succeed as the new business owner in these locations.
"The collection of distribution centers and other assets that Performance Food Group will acquire along with related support services agreements will enable us to compete effectively for national broadline foodservice customers," said George Holm, Performance Food Group chief executive officer and president. "We are excited by the opportunities for growth presented by this transaction and are confident that we will effectively execute our plans to become one of the country's premier broadline distributors serving customers coast to coast."
After selling these facilities, Sysco estimates it still will be able to achieve net annual synergies of at least $600 million in four years. This estimate reflects additional synergies identified during the company's integration planning efforts.
"Our analysis shows that our projected synergies will remain as substantial as we had previously outlined, even after reflecting the impact of divestitures," DeLaney said. "This is a testament to the strength of our ongoing integration planning work and reaffirms the major efficiencies we can achieve by bringing Sysco and US Foods together. These savings will position Sysco to deliver significant new value to our customers, including lower costs."