HOUSTON, TX - While Sysco and US Foods are hard at work to gain regulatory approval from the FTC for their proposed $3.5 billion merger agreement, analysts are beginning to voice concerns that the gap between the two parties may be too large to bridge.
As the only two companies with national distribution services to hospitals, restaurants and schools, Sysco and US Foods have proposed selling assets to Performance Food Group (PFG) in order to alleviate monopolistic concerns. Analysts quoted in Reuters point out, however, that PFG lacks a strong presence in the western United States, the home of many of the distribution centers Sysco and US Foods are looking to sell.
Andre Barlow of Doyle, Barlow and Mazard PLLC shares that product avaliability may also be a concern. Sysco and US Foods both offer over 350,000 different products for sale. PFG only offers 150,000.
"That seems like a big discrepancy," he said. "If you want to restore that lost competition, you want someone to also provide those SKUs."
"They [the FTC] will take this seriously," agreed Carl Hittinger, an antitrust expert with Baker Hostetler.
Bob Goldin, EVP of the consulting firm Technomic, cautions not to count PFG out too quicky, however.
"If it's an available item, a powerful enough customer can pull the product through the system,” he explained to Reuters. “It's all about leverage."
Sysco and US Foods' latest offer would involve the sale of $5 billion worth of assets. Whether this will be enough will be up to the FTC to decide. To keep up to date with the latest, make sure you stay tuned to AndNowUKnow.
