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Sysco-US Foods merger questioned

Business formations, mergers and buyouts are subject to numerous legal requirements must overcome regulatory compliance hurdles. Recently, Minnesota's Attorney General questioned a Sysco's plan to acquire US Foods from its private equity owners to merge the nation's two largest food distributors.

Last December, Sysco announced the $3.5 billion acquisition to consolidate these Minnesota companies. Sysco is the largest food distributor with annual revenues of $44 billion. US Foods is second. Approximately 25 other states are also reviewing the merger proposal because Sysco and US Foods are the nation's two national distribution companies and distribute foods to restaurants, hotels, hospitals and schools.

Sysco is negotiating with Performance Food Group to sell its assets. It hopes that a deal with this smaller, regional company will assure the FTC that competition will not be lost. Most of PFC's distribution centers are located in the West, including California, where competition is weak.

The Federal Trade Commission is reviewing the merger to ensure that it complies with antitrust laws. In a letter to the FTC, the state's Attorney General questioned whether any divestiture could restore completion in the industry which would be lost in this transaction. She said that she received complaints that restaurants in Minnesota would have fewer choices among food distributors and consumers would have to pay higher prices. She pointed out schools, universities and hospitals frequently take bids from Sysco and US Foods.

She also said that it was questionable whether any divestiture could recreate the loss of strong competition from US Foods in food distribution. She asked the FTC closely scrutinize the deal but did not request the agency block this deal.

Mergers and acquisitions and other asset purchases require planning and often face numerous legal challenges. Businesses should make sure they understand all the legal consequences to these transactions before they are complete.

Source: Reuters, "Exclusive: Minnesota AG questions divestiture in Sysco-US Foods merger," Diane Bartz, Dec. 15, 2014

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