Sysco Could Lose $1 Billion if US Foods Merger Fails

May 18 2015 | 12:38am ET

The nation’s largest food distribution company, Sysco Corp., could face a $1 billion bill should the government kill a $3.5 billion merger with KKR-backed US Foods. The Federal Trade Commission and Sysco will conclude arguments on the merits of the deal on May 28.

Sysco has already spent roughly $400 million on integration planning, legal fees, and financing the deal. That represents more than 40% of its net profits from 2014. However, the company could wind up spending much more if regulators kill the deal over antitrust concerns. 

Should regulators kill the deal, Sysco will owe US Foods a $300 million termination fee, and up to $25 million to Performance Food Group, which agreed to purchase divested assets from the proposed deal. The company would also lose another $265 million should the deal not close by Oct. 8 thanks in part to the cost of redeeming $5 billion in bonds targeted for use in this merger.

US Foods is controlled by private equity firms KKR & Co. and Clayton, Dubilier & Rice. The two firms maintain that the food service and distribution sector is highly competitive and that a deal would allow both company to realize savings of roughly $600 million within a few years. The FTC, however, argues that the deal would allow Sysco to dominate the industry and raise prices.

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