November 5, 2014

Sysco merger with U.S. Foods meets another delay

In a deal that's been beset with challenges, Sysco has announced plans to push ahead in its merger with U.S. Foods despite another delay. The transaction has been almost a year in the making, as the company announced last December it would purchase the second largest food distributor in America. Sysco, the largest distributor, has been met with resistance from antitrust regulators, who have conducted a review before giving the deal a regulatory rubber stamp. 

The process was originally projected to take a few months, according to the Houston Chronicle. This week, Sysco announced the merger should be official by the end of the first quarter of 2015. The Federal Trade Commission has so far withheld approval as talks continue, indicating the magnitude of such a sale. On a call with investors, Sysco CEO Bill DeLaney said that integration planning and sequencing was still in the works, reassuring shareholders that the deal is active. 

"Most deals in the space aren't big enough to warrant regulatory review," Erin Lash, a Morningstar analyst, told the newspaper. "I think Sysco has had to educate and inform regulators on the dynamics within the industry and how it works."

With unprecedented scope in the food distribution industry, the merger may require Sysco to part with a small portion of its assets, Lash said. The Houston food giant could effectively reduce competition within the industry upon acquiring U.S. Foods, some analysts say. One estimate predicts the company would control 25 percent of the market, carrying formidable clout providing goods to schools, hospitals, and other civic operations. 

Some reports have characterized Sysco's strategy as a pressured attempt to save the 3.5 billion merger. On Monday, Sysco stocks fell by 2.7 percent, so the company announcement may reassure investors that the deal is on track.