US judge, FTC stays Sysco merger with US Foods

Sysco tractor-trailers sit parked outside the company's distribution center in Louisville, Ky.
Luke Sharrett | Bloomberg | Getty Images
Sysco tractor-trailers sit parked outside the company's distribution center in Louisville, Ky.

Sysco, the nation's largest food distributor, lost a battle with the U.S. government as a federal judge ruled on Tuesday that the company could not merge with its biggest competitor, US Foods, without a go-ahead from antitrust enforcers.

Sysco shares fell more than 2 percent after the decision.

"The Federal Trade Commission has shown that there is a reasonable probability that the proposed merger will substantially impair competition in the national customer and local broadline markets and that the equities weigh in favor of injunctive relief," Judge Amit Mehta said, in a brief opinion.

The FTC had sued to stop Sysco's $3.5 billion bid for US Foods in February, despite Sysco's claims that regional rivals would provide enough competition to prevent monopoly power in the national food distribution space. At the heart of the FTC's argument was fact that US Foods and Sysco control 75 percent of that market.

"While we respect the court's decision, we are profoundly disappointed with this outcome," Sysco CEO Bill DeLaney said, in a statement. "We diligently pursued this transaction for nearly two years because we strongly believed the merger of Sysco and US Foods would be pro-competitive and good for customers, associates and shareholders."

While it wasn't immediately clear whether or not Sysco would appeal the decision, the company reiterated it believes a deal is still possible.

"We will take a few days to closely review the court's ruling and assess our legal and contractual obligations, including the merits of terminating the merger agreement," DeLaney said. "We will provide additional clarity in the coming days."

John Lederer, CEO of privately-owned US Foods, expressed his company's commitment to carrying on despite the ruling. "We are ready for whatever comes next," he said. "We have the talent, passion and financial foundation to take this company to the next level for our customers and for our employees."

—CNBC's Jim Forkin and Reuters contributed to this report.