Exclusive: Sysco, US Foods offer to divest 11 facilities to win FTC deal approval

Fri Jan 30, 2015 7:00pm EST
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By Diane Bartz

WASHINGTON (Reuters) - Food distributor Sysco Corp (SYY.N: Quote) and its biggest rival, US Foods Inc USFOO.UL, have offered to sell a smaller competitor 11 facilities in order to convince skeptical antitrust regulators to approve their $3.5 billion merger, a source briefed on the matter told Reuters.

The deal, proposed in December 2013, is seen as problematic because Sysco and US Foods are the only companies with the geographic reach to offer nationwide contracts to deliver a wide range of goods to customers ranging from hotel chains to hospitals to fast food chains and fine restaurants.

To overcome Federal Trade Commission concerns, the companies have offered to sell 11 distribution centers with $5 billion in sales in hopes of building Performance Food Group into a national competitor, essentially replacing US Foods, according to the source, who spoke on condition of anonymity.

Sysco executives and FTC officials are scheduled to meet over the next two weeks to discuss whether the offer would be enough to win regulatory approval.

Performance Food Group is strong in the eastern United States, Texas and California but has few distribution centers in the rest of the West, according to its company website.

Most of the distribution centers to be sold are in the western United States and one is in California, according to two sources knowledgeable about the talks.

Sysco is the biggest U.S. food distributor with annual revenue of about $44 billion. US Foods, which is owned by private equity companies including KKR & Co (KKR.N: Quote), is No. 2.

Performance is owned by Blackstone Group (BX.N: Quote).   Continued...

A US. Foods truck is shown on  delivery in San Diego, California October 23, 2013. REUTERS/Mike Blake