NEW YORK (The Deal)--The antitrust review of Sysco's (SYY) proposed $8.2 billion purchase of food distribution rival US Foods, already expected to be lengthy, has been delayed getting under way because the Federal Trade Commission and the Department of Justice have not yet decided which agency should review the deal.
"The government has not determined which of the agencies will actually be responsible for reviewing the transaction yet," Sysco CFO Chris Kreidler told attendees at the 16th Annual ICR XChange Conference in Orlando, Fla., Tuesday.
"We don't really understand and don't know who's going to get it. We know they're discussing and we just don't know who's going to be on point," he said.
In most cases, it's clear which agency will review a particular merger because the DOJ and the FTC generally have divided responsibility according the amount of experience each one has in a particular industry. Sometimes, as with the US Foods acquisition, it's not clear which agency has the better claim to expertise.
Although some staff at the FTC had expected to be assigned the deal, neither agency has reviewed a major merger of food distributors.
The DOJ, however, has deep expertise in food and transportation. It's recent deals in the area include last year's merger of Anheuser-Busch InBev (BUD) and Grupo Modelo, Grupo Bimbo's 2011 acquisition of Sara Lee's North American Fresh Bakery business and several mergers of major meat packers.
The FTC's claim to the deal lies in its experience reviewing grocery and retail transactions. Although Sysco and US Foods primarily serve institutional clients, such as restaurants, universities and military installations, rather than grocery stores, the commission has argued that it has developed expertise with institutional clients by handling antitrust reviews for ConAgra Foods' (CAG) 2012 acquisition of the Bertolli and P.F. Chang's Home Menu frozen meal business from Unilever (UL) and Kellogg's (K) 2009 acquisition of Wholesome & Hearty Foods' Gardenburger business.
Lawyers for the parties did not respond to an inquiry, but sources with knowledge of the talks predicted the DOJ would win the right to review the deal. According to an agreement between the two agencies, ceding this review to the DOJ would entitle the FTC to claim the next deal in which both assert jurisdiction.
The agencies try to avoid time-consuming disputes over turf, which frustrate merging parties eager to get the antitrust review behind them.
In some instances, clearance battles have forced merging companies to pull and refile their merger applications because the agencies have chewed up a good portion of the 30-day window antitrust regulators have to clear a deal or move to a more intensive second request for information that can add months, or even a year, to an antitrust review.
During the George W. Bush administration, then-FTC Chairman Tim Muris and his counterpart at the DOJ, Assistant Attorney General Charles James, proposed a division of responsibilities that would have reduced the chance for clearance battles. But the move angered some on Capitol Hill and Muris' replacement, Deborah Platt Majoras, had to promise not to enter into such an agreement when she was seeking confirmation.
Withdrawing and refiling a merger application resets the initial 30-day clock.
In this deal, Sysco and US Foods know they are in for a long review anyway and are believed to have had only informal talks with the regulators so far and to be waiting until they know which agency will be assigned the transaction before submitting formal merger notification documents.
"There will be an extensive regulatory review," Kreidler said Tuesday. "We expect that to take nine months to 12 months. We do expect it to be a collaborative process and ultimately, we expect and we're very confident that we will get the deal approved."