U.S. Foods prepared to drop merger with Sysco

 An executive for US Foods testified in federal court that US Foods is prepared to abandon a proposed merger with Houston-based Sysco Corp. if the judge grants a preliminary injunction to block the merger.

US Foods is not prepared to engage in a lengthy court battle with the Federal Trade Commission over its proposed merger with Sysco, David Schreibman, an executive vice-president at US Foods told presiding U.S. District Court judge Amit Mehta. The F.T.C. is seeking a preliminary injunction to block the merger while the agency conducts a more detailed investigation in July. Executives from both companies testified during court proceedings on Monday.

In February, the F.T.C. filed a lawsuit challenging the merger. The agency argued the merger would eliminate competition in the food service and distribution marketplace. Sysco rebutted the F.T.C.’s claim, saying the merger would benefit customers and enhance employee opportunities while creating substantial efficiencies for the merged companies.

Bill DeLaney, chief executive officer of Sysco, said the food service industry is highly competitive. Lawyers for the companies have gathered documents to back Sysco’s argument of intense competition in the food service industry.

Meanwhile, companies that submitted information as part of the case have filed for protective orders to keep their business connections confidential.

For example, Del Frisco Restaurant Group, Inc. — which operates Del Frisco's Double Eagle Steakhouse, Del Frisco's Grille and Sullivan's Steakhouse — filed a motion to have its documents kept from the public record and accessible only to authorized individuals.

In court documents, HPSI Purchasing Services said the group purchasing organization contracts with food service providers like Sysco and US Foods and with “a number of competitors to Sysco and US Foods.”

“...HPSI made clear to both the F.T.C. and Sysco that the information being sought from it was highly confidential, and that it would suffer competitive injury if the information was publicly disclosed—even if it was disclosed internally to Sysco US Foods,” the company said in its motion for protection. “Indeed, in addition to protections afforded by protective orders in the [FTC lawsuit], HPSI entered into an agreement with all parties...further restricting their use and dissemination of information provided by HPSI.”

Testimony is expected to continue through the week. The F.T.C. presented its side of the case last week.