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Sysco Corporation, Et Al., ) ) Defendants Case 1:15-cv-00256-APM Document 190 Filed 06/26/15 Page 1 of 131 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ) Federal Trade Commission, et al., ) ) Plaintiffs, ) ) v. ) Civil No. 1:15-cv-00256 (APM) ) Sysco Corporation, et al., ) ) Defendants. ) ~~~~~~~~~~~~~~~~ ) MEMORANDUM OPINION Case 1:15-cv-00256-APM Document 190 Filed 06/26/15 Page 2 of 131 TABLE OF CONTENTS INTRODUCTION ......................................................................................................................... 1 BACKGROUND ........................................................................................................................... 3 I. The Foodservice Distribution Industry ............................................................................... 3 A. Overview ................................................................................................................. 3 B. Channels of Foodservice Distribution .................................................................... 4 I. Broadfine Distriln1tors ................................................................................ 4 2. .s:vstems Distributors ................................................................................... 6 3. Specialty Distributors ................................................................................. 7 4. Caslz~aml~Can:r and Cl11h S'torcs .............................................................. 7 C. Foodservice Distribution Customers ...................................................................... 8 I. Group Purchasing Orga11i::atio11s ............................................................... 8 Foodsen'ice Managemcnt Companies ........................................................ 9 3. Hospitality Chains ...................................................................................... 9 4. Restaurant Chains ..................................................................................... I 0 5. Govermnem Agencies ............................................................................... I 0 6. ''Street" C'usto1ners ................................................................................... 10 II. Case History ...................................................................................................................... 11 A. Sysco and USF ...................................................................................................... 11 B. History of the Merger. ........................................................................................... 11 C. History of these Proceedings ................................................................................ 12 LEGAL STANDARD ................................................................................................................. 14 I. Section 7 of the Clayton Act ............................................................................................. 14 II. Section 13(b) Standard for Preliminary Injunctions ......................................................... 14 III. Baker Hughes Burden-Shifting Framework ..................................................................... 16 DISCUSSION .............................................................................................................................. 17 I. The Relevant Market. ........................................................................................................ 17 A. Broadline Distribution as a Relevant Product Market .......................................... 19 1. Legal Principles A:lf'ecting the Definition r~f the Relevant Product Market .......................................................................... 19 ., The Brown Shoe "Practical Indicia" ....................................................... 23 3. E'lq>erl Testfn101~v ...................................................................................... 33 4. Conclusion as to the Broadline Product Market ...................................... 41 B. National Broadline Distribution as a Relevant Product Market ........................... 41 1. Legal Basis for De.fining Relevant Product Market Based on Custo1ner Type .......................................................................... 42 2. Evidence Supporting a National Broadline Product Market .................... 44 Case 1:15-cv-00256-APM Document 190 Filed 06/26/15 Page 3 of 131 C. Product Market Summary ..................................................................................... 60 D. Relevant Geographic Market ................................................................................ 60 l. iVational 1'v.larker ........................................................................................ 62 2. Local lt4arkets ....... ,, ...................... ,, ........................ ,, ...... ,, ..................... ., .. 62 II. The Probable Effects on Competition ............................................................................... 66 A Concentration in the National Broadline Customer Market ................................. 67 /. Dr. lsme! 's National Broadline Customer Market Shares Calcu/at;ons ...................................................................... 67 2. Defimdants 'Arguments ............................................................................. 69' 3. 711e ('ourt 's Finding as to Nmfonal Broadline Customer i\1arket 5J1ares ........................................................................................... 72 B. Concentration in the Local Markets ...................................................................... 72 /. Dr. Israel's Locc1! Broadline Customer lv!arket 5Juires Calculations ...................................................................... 72 2. DeJi!mlants ·A rgumenrs .... ......................................................................... 74 ') .). The Court's F'inding as to Local Broarlline Customer lvfarket Shares ........................................................................................... 81 c. Additional Evidence of Competitive Harm .......................................................... 81 1. Unilateral E!Jects i\fationaf Cus1omer Market .......................... ,_ ........... 81 2. Merger Simulation Modef. ....... Natio11al Cuswmer Marker .......................... 89' 3. Unilateral lijfects-Local lvfarkets .,,, ....................................................... 92 4. Local Event Studies ........................ ,, ...... ,. ................................................. 97 5. ,S •lt1111na1J . ., ............ ,, ... ,. .................................................,. ............................. c19::1 III. Defendants' Rebuttal Arguments .................................................................................... 100 A. PFG Divestiture .................................................................................................. 100 !. Competitive Pressure E'xerted hy Post-Divestiture PFG ........................ 102 2. Addi1fonal Disadvantages Faced hy Post-Merger PFG .................... ,..,. 107 3. Posr-A1erger PFG as an independent Competitor .................................. l 09 B. Existing Competition .......................................................................................... 110 1. Regionalization ....................................................................................... l lO 3. Conclusion as to Existing Competition,,,.,, ......................................... ,, .. 114 C. Entry of New Firms and Expansion of Existing Competitors ............................ 114 D. Efficiencies ......................................................................................................... 117 !. Requirememfor Merger-Specffic and Verifiable E,Yficiencies ................ t 17 2. !nsttfJiciemy ofEstimated lvferger-Specific Savings ............................... 123 E. Conclusion .......................................................................................................... 124 IV. The Equities .................................................................................................................... 125 CONCLUSION ......................................................................................................................... 127 11 Case 1:15-cv-00256-APM Document 190 Filed 06/26/15 Page 4 of 131 INTRODUCTION Americans eat outside of their homes with incredible frequency. The U.S. Department of Commerce, for instance, recently reported, for the first time since it began tracking such data, that Americans spent more money per month at restaurants and bars than in grocery stores. 1 Of course, Americans eat out at many other places, too-sports arenas, school and workplace cafeterias, hotels and resorts, hospitals, and nursing homes, just to name a few. The foodservice distribution industry supplies food and related products to all of these locations. Foodservice distribution is big business. In 2013, the market grew to $231 billion. By some estimates, there are over 16, 000 companies that compete in the foodservice distribution marketplace. The two largest foodservice distribution companies in the country are Defendants Sysco Corporation ("Sysco") and US Foods, Inc. ("USF"). Both are primarily "broadline" foodservice distributors. As the name implies, a broadline foodservice distributor sells and delivers a "broad" array of food and related products to just about anywhere food is consumed outside the home. In 2013, Sysco's broadline sales were over sm billion and USF's
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