US Foods to close a facility, lay off 206 workersUS Foods to close a facility, lay off 206 workers

US Foods is planning to close one of its facilities in Florida, reportedly due to a significant loss of business, even as the company works to merge with larger rival Sysco.

The Rosemount, Ill.-based food distributor submitted a layoff notice to the state of Florida this week, indicating that it plans to lay off 206 workers in Lakeland, Fla., in early August.

The Lakeland Ledger obtained a memo from US Foods, pointing to “a significant loss of business” for the closure on and stating that the company “can no longer sustain its current level of operational costs.”

Word of the closure comes as US Foods and Sysco are battling federal regulators in court to save their planned $8.2 billion merger, first announced in December 2013. Those hearings were expected to end this week, though they’d been extended by a day, according to the Wall Street Journal. Closing arguments are expected by the end of May.

US Foods recently reported a $7 million profit in the first quarter of this year, but had been losing money for years. The company has reported a net loss in each of the past five years, according to SEC documents, including a $73 million loss on $23 billion in net sales in 2014.

Much of the loss is due to interest payments on debt. According to SEC filings, the company has $4.7 billion in long-term debt and had a $71 million interest payment on that debt in the first quarter.

While US Foods CEO John Lederer said this week that his business is “well positioned to move forward” if the merger fails, he acknowledged in an earnings call that the long merger process has left the company “in limbo.”

Many observers suggest that long limbo period has hurt the company. “US Foods has been devalued during the merger process,” said Bob Sala, former CEO and founder of national distribution marketing cooperative Distribution Marketing Advantage, and now an industry consultant. “They’ve lost customers. There’s a market perception issue.”

It’s uncertain whether the closure of the Lakeland facility is related in any way to the delayed merger. A US Foods spokeswoman has not responded to a request for comment as of press time.

The pending merger of Sysco and US Foods has been a long, carefully watched issue in the restaurant industry for nearly a year and a half. The deal would combine the two largest food distributors in the country and the two with a national reach. Both are huge suppliers of food and other supplies to independent restaurants and chains.

The FTC has sued to block the merger, claiming that the deal would harm competition, both on a national scale and in local markets like San Diego where it says the two dominate the distribution business.

Sysco and US Foods counter that there is no national market for food distribution and that there is plenty of competition in local markets, with cash-and-carry stores like Restaurant Depot, smaller distributors and specialty distributors. They also say that synergies created from the deal would save money and enable the merged company to lower prices.

The testimony this week is over a request for an injunction by the FTC, delaying the merger while the lawsuit plays out. Yet the judge’s decision on that injunction is widely expected to determine the fate of the deal.

US Foods executives have indicated they’d walk away if the deal was delayed much further, and the FTC is expected to drop its case if the injunction fails.

Contact Jonathan Maze at [email protected].
Follow him on Twitter at @jonathanmaze