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Sysco terminates planned $3.5B takeover of US Foods

June 29, 2015

Sysco Corp. has terminated its planned $3.5 billion takeover of US Foods, it announced Monday, after a federal judge blocked the combination. The company is opting instead to add $3 billion to its stock-buyback program.

With the deal breaking up, Sysco will pay a $300 million termination fee to US Foods and a $12.5 million fee to Performance Food Group, which had agreed to buy some US Foods facilities. Sysco, based in Houston, plans to make the share repurchases over the next two years.

Rosemont, Illinois-based US Foods operates a major distribution center in Fishers. Sysco has a large warehouse at 4000 W. 62nd St., in Indianapolis.

“It’s in the best interests of all our stakeholders to move on,” CEO Bill DeLaney said in a written statement. “We are prepared to move forward with initiatives that will contribute to the success of Sysco and our stakeholders.”

Sysco had fought for more than a year to gain government approval for the transaction, which antitrust regulators said would hurt competition and lead to higher prices. Sysco and US Foods dominate a market known as broadline foodservice, which supplies school cafeterias, restaurants and hotels. Sysco had argued that the acquisition would bring $1 billion in savings, letting it offer lower prices to customers.

Investors have responded with relief to the deal’s demise, reflecting concerns about the company undertaking an ambitious merger. Sysco shares rose 3.1 percent the day the transaction was halted by U.S. District Judge Amit Mehta, and the stock climbed again Monday morning after the merger was withdrawn.

Mehta blocked the merger on June 23 when he granted a Federal Trade Commission request to delay the transaction. The FTC had sued the companies in February, saying the deal would give Sysco an oversized share of an industry where it’s already the biggest player.

In arguments before Mehta in May, the two sides clashed over the scope of the market in which the companies compete. Sysco and US Foods argued that the commission was relying on a “tortured” analysis, ignoring the variety of distribution channels available to customers.

Sysco said on Monday that it weighed embarking on an appeal but decided against it.

Shares of Sysco rose as much as 1.6 percent to $39 in early trading. The stock had slid 3.3 percent this year through the end of last week.

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