NEW YORK (The Deal) -- A number of parties, including customers and attorneys general from nearly a dozen states, have met with Federal Trade Commission officials to complain about Sysco's (SYY) $8.2 billion planned acquisition of its next-largest food distribution rival US Foods.
Critics of the deal, who have also been joined by some public interest groups, argue that it will harm competition for food distribution to institutional users such as university cafeterias, military installations, prisons and hotels.
The companies said the combined entity would have 25% of the U.S. food distribution market. Other estimates range as high as 35%.
The real question is whether the FTC will view the deal simply as one that affects numerous local markets across the country or one that also affects a truly national market. Sysco officials have insisted that they do not compete on a national basis to win customers and that even clients such as food service giant Aramark (ARMK) enter contracts on a local basis.
The companies recognized that the FTC might identify some antitrust issues. Sysco has committed to divest assets accounting for up to $2 billion in annual revenue if regulators demand it, but the merger agreement does not obligate the company to spin off assets beyond that cap. US Foods is entitled to receive a $300 million termination fee if the deal doesn't receive antitrust approval.
The deal's critics counter that antitrust issues at the national level do exist and cannot be resolved simply by agreeing to local divestitures.