The Federal Trade Commission has sued to block the merger and has requested a preliminary injunction to stay the merger until the lawsuit is heard. Hearings on the injunction are scheduled to begin on May 5.
The hearing on the injunction is considered a key element in the case. Richard Parker, an attorney for Sysco, suggested last month that the FTC’s case would die if it couldn’t get a federal judge to stay the merger.
“The real fight will be in federal court,” Parker said.
If the FTC wins in court, Sysco and US Foods would have to overcome the FTC’s lawsuit.
The merger deal was set to expire on March 8. The extension means that the $8.2 billion merger would not close until 17 months after it was first announced, at the earliest.
The case between the FTC and the two giants hinges on the significance of the combined company’s national presence in the food distribution business. Sysco and US Foods are currently the only two companies that distribute a broad range of food products nationwide.
The FTC argues in its lawsuit that the merger would create a single company with 75 percent of the national broadline distribution market. Combined, the two companies would have 133 distribution centers. By comparison, the next largest distributor, Performance Food Group, has 33 centers, according to the lawsuit.
The agency argues that the two companies would have more than 50 percent of the food distribution business in 32 markets. Foodservice companies, including restaurants and school and hospital cafeterias, often have only two companies to choose from for food deliveries.
Sysco and US Foods argue that the market is competitive, with numerous small and regional competitors. Retailers like Restaurant Depot and Costco also provide avenues for foodservice companies to get supplies. The companies argue that the merger will enable them to lower prices.
Many experts say that a national competitor to the combined company would likely emerge. That includes Performance Food Group, which has agreed to buy 11 facilitiesthat generate $4.6 billion in revenue, from Sysco-US Foods if the merger goes through.
To illustrate the closeness of the debate, the FTC’s five politically appointed commissioners voted 3-2 to proceed with a challenge to the merger. The vote was along party lines, with the commission’s three Democrats voting to challenge the deal.