Sysco Corp. will sell 11 US Foods distribution facilities to Performance Food Group, a move designed to alleviate Federal Trade Commission concern over Sysco’s merger with US Foods, the company said Monday.
Sysco executives are taking their case directly to the agency’s five politically appointed commissioners. The agency has not approved the merger, announced in December 2013, even with the sale of the 11 facilities.
“Over the last 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 significant customer benefits that will result from the merger of Sysco and US Foods,” Sysco CEO Bill DeLaney said in a statement. “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.”
The merger of Sysco and US Foods is being closely watched in the restaurant industry because they are the only two companies that can distribute a broad range of food products nationwide. That has reportedly concerned FTC officials, who have held off on approving the merger.
Sysco counters that the market is highly competitive and that many restaurant chains divide their business among different food distributors.
“They believe there are companies out there that will only buy from national distributors,” DeLaney said during the company’s earnings call Monday. “We disagree. Some will buy from multiple distributors. From regionals or multi-regionals. They’ll buy from US Foods, from us, from others, from specialty firms.”
Performance Food Group is the largest among a group of super-regional, broadline distributors. It has agreed to pay $850 million for the 11 facilities, located in Western and Midwestern states. Three facilities are in California, while the others are in Seattle; Cleveland; Las Vegas; Minneapolis; Denver; Kansas City, Mo.; Phoenix and Salt Lake City.
Those facilities generated $4.6 billion in annual revenue in US Foods’ most recent fiscal year, according to the company.
Acquiring the facilities should make PFG a stronger national competitor for Sysco-US Foods, should the merger receive approval.
The distribution centers “will enable us to compete effectively for national broadline foodservice customers,” Performance Food Group CEO George Holm said in a statement. “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.”
Sysco and Performance Food Group have agreed on a multi-year transition services agreement as part of the deal to ensure a smooth transition of assets. Sysco will provide support services and personnel to help Performance with the new locations.
Even with the divestiture, Sysco-US Foods would be by far the biggest distributor in the country. Calculating the shift in revenue and assets, Sysco-US Foods would have 242 warehouses and $60.4 billion in annual sales. PFT would have $18.3 billion in annual sales and 78 distribution centers.
Contact Jonathan Maze at [email protected].
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