A federal judge’s ruling sided with the FTC and may stop the merger of the two largest food distribution companies in America
The $3.5 billion dollar purchase may have to be scrapped after a judge’s ruling.
A federal judge’s ruling on Tuesday may kill Sysco Corporation’s attempt to purchase US Foods Inc and prevent the merger of the two largest food companies in America.
U.S. A redacted version of the judge’s order is scheduled to be released on Friday.
The ruling is viewed as a win for the Federal Trade Commission, which filed a lawsuit to block the $3.5 billion purchase back in February.
The FTC’s opposition to the merger stems from a concern that the largest food distribution company buying the second largest isn’t good for the public.
“The takeover would eliminate competition between the two companies that dominate the industry,” explained insidetrade.co. “That would lead to higher prices for customers including school cafeterias as well as restaurants and hotels. The costs would then be passed on to consumers,”
Sysco, which had been preparing for this outcome, is reportedly “extremely disappointed” and will consider their options as they figure out what happens next. If the plan does fall through, US Foods is entitled to a $300 million breakup fee from Sysco, reports the Chicago Tribune.
It’s unclear if the two companies will try to fight the ruling by attempting to further remedy antitrust concerns, or if they will scrap the deal altogether, according to Forbes.
Starbucks coffee along with coffee making equipment were made available in each room in Hyatt, Hilton, Sheraton, Radisson and Westin Hotels. Coffee service was also provided in several Wells Fargo banks in California. Foodservice distributors such as Sysco
Starbucks coffee along with coffee making equipment were made available in each room in Hyatt, Hilton, Sheraton, Radisson and Westin Hotels. Coffee service was also provided in several Wells Fargo banks in California. Foodservice distributors such as Sysco Corporation
Pulitzer Prize-winning journalist Michael Hiltzik writes a daily blog appearing on latimes.com. His seventh book, “Iron Empires: Robber Barons, Railroads, and the Making of Modern America,” has just been published by Houghton Mifflin Harcourt. His previous books include “Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age” and “The New Deal: A Modern History. His business column appears in print every Sunday, and occasionally on other days. Hiltzik and colleague Chuck Philips shared the 1999 Pulitzer Prize for articles exposing corruption in the entertainment industry. Follow him on Twitter at twitter.com/hiltzikm and on Facebook at facebook.com/hiltzik.
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Government, Sysco make cases in merger hearing
Produce and other food-service items are unloaded from trucks through sealed cargo bays at the Sysco distribution center in Schertz. Tuesday’s ruling means the Sysco and US Foods cannot move forward with the merger without further review. Express-News file photo
Sysco Corp.&rsquos takeover of US Foods Inc. would create an industry &ldquobehemoth&rdquo in food distribution, eliminating intense head-to-head competition between the companies, a U.S. lawyer said at the start of a courtroom battle over the merger.
The Federal Trade Commission is asking a federal judge to block the $3.5 billion combination, arguing the merger would give Sysco an oversized share in an industry where it&rsquos the biggest player and lead to higher prices for restaurants, hotels, school cafeterias and other customers.
Sysco and US Foods &ldquodwarf&rdquo their rivals and their tie-up &ldquowill harm competition in many markets,&rdquo Stephen Weissman, an attorney for the FTC, said in opening statements Tuesday in Washington.
U.S. District Judge Amit Mehta is hearing arguments in the FTC&rsquos request to halt the merger pending an administrative proceeding before the agency&rsquos in-house court. Sysco and US Foods say delaying the deal now will kill it. The hearing is scheduled to last as long as seven days.
The industry is highly competitive and includes a wider array of options for customers than the FTC claims, the companies argue. Rich Parker, a lawyer for Sysco, disputed the FTC&rsquos claim that the combined companies would have a 75 percent market share, saying food distribution is a &ldquosprawling industry&rdquo where more than 16,000 other businesses have about 60 percent of the market.
&ldquoPeople are competing fiercely,&rdquo Parker said. &ldquoAntitrust law is about promoting competition. That&rsquos what we&rsquore doing.&rdquo
The FTC sued Sysco and US Foods in February after rejecting their offer to remedy antitrust concerns by selling 11 facilities to Performance Food Group Co. The commission says the deal would eliminate competition between the only two distributors with national footprints.
During his opening remarks, Weissman displayed a map of the companies&rsquo distribution centers that showed overlaps between them across the country. The companies see one another as their main competition and customers leverage that rivalry to negotiate better deals, Weissman said.
The FTC and the Justice Department, which share antitrust enforcement power in the U.S., rarely sue to stop mergers. Of the 1,326 transactions reviewed in the year ended Sept. 30, 2013, fewer than 1 percent went to court without a settlement, according to the latest report on federal antitrust enforcement available.
The case centers on how broadly to define the market that Sysco and US Foods compete in. The FTC argues that so-called broadline distributors such as Houston-based Sysco and US Foods, based in Rosemont, Illinois, operate in a distinct segment of the industry. They provide a kind of one-stop shopping for customers that others can&rsquot, according to the agency.
Broadliners are unique because they offer extensive food products, frequent and flexible delivery and other services including menu planning, the FTC says. Other options such as Costco, Restaurant Depot and specialty distributors aren&rsquot adequate substitutes for customers, according to the agency.
Parker, the Sysco lawyer, argued the competitive landscape is much broader and that the FTC is relying on a &ldquoconstrained&rdquo market definition that makes the companies appear to have more sway than they really do.
Joseph Astrachan, a professor of family business at Kennesaw State University in Georgia, said it was not unusual for an older family member to reassert leadership after passing it on. But the move by Don Tyson -- who controls about 90 percent of the voting stock of Tyson -- nonetheless sends a bad signal, he added.
''If you follow appropriate command, he should have gone to his son and said: 'I think the deal's off. What do you think?' '' Professor Astrachan said. 'ɽon Tyson should have played a role, but not by going behind his son's back.''
Tyson officials dispute that reading of the March 28 meeting. Don Tyson, they say, has full confidence in his son. John Tyson is leading the company. And both men, they say, are backing the revival of the Tyson-IBP deal.
'ɽon and John are on the same page, and they're aligned on this deal,'' said Ed Nicholson, a company spokesman. 'ɺnyone who is trying to draw the conclusion that Don is overruling John is not drawing the right conclusion.''
Some analysts said there were clear indications of a division at the top of Tyson, with Don Tyson stepping in to try to block what seemed like a costly and difficult merger that his son was pushing to complete.
According to transcripts of the Delaware trial, John Tyson called Richard L. Bond, the president and chief operating officer of IBP, and asked him to encourage the elder Mr. Tyson to back the deal.
In testimony at the trial, Mr. Bond recalled John Tyson telling him: ''My dad's a little nervous about how we're going to pay for all this debt when we get the two companies put together. Would you mind spending some time with my dad and talk to him about, about the business and try to make him, you know, more comfortable.''
Some analysts, though, said they were hardly surprised by the developments. They say they have long understood that Don Tyson was calling the shots.
''I never thought for a second Don Tyson wasn't involved in this deal and wasn't a controlling factor in the deal,'' said John McMillin, an analyst at Prudential Securities.
Still, some analysts are optimistic about the deal precisely because the two most powerful figures in the drama -- the elder Mr. Tyson and Robert L. Peterson, the chief executive of IBP -- are not expected to run the combined company's day-to-day operations.
''I honestly believe this can work,'' said Christine McCracken, an analyst at Midwest Research. 'ɻob Peterson is going to gradually go away, and Don will fade into the background.''
Todd J. Duvick, a food analyst at Bank of America, said that Tyson's heavy debt meant ''they don't have a lot of room for error.''
So John Tyson is going to have to prove that he can manage a company far more complicated than the one his father inherited in 1967, when John W. Tyson, the founder, died.
No one expects it to be easy. ''This is probably going to be make or break for John,'' Mr. Dahlman said.
Injunction Halts Takeover Bid for Gold Fields Firm
A federal judge in New York Monday halted the $4.9-billion hostile takeover bid for Consolidated Gold Fields PLC, a British firm that generates half its income from U.S. subsidiaries.
U.S. District Judge Michael Mukasey issued a preliminary injunction that stalls the bid by Minorco S.A., a Luxembourg firm controlled by the Oppenheimer-DeBeers syndicate in South Africa. Gold Fields sought the injunction in its antitrust suit, which is part of the firm’s fight to stop the takeover.
Mukasey ruled that the takeover would give Minorco control of 32% of the world’s gold production and would likely violate U.S. antitrust laws.
“We’re still studying the opinion, but we expect that we will appeal the decision,” Jeremy Epstein, Minorco’s lead attorney, said. “We expect to ask the judge to stay the order pending appeal, and if he refuses, we’ll ask the appellate court to stay the order.”
The ruling prevents Minorco from implementing its takeover offer today. But a stay would allow the firm to buy more stock while the decision is appealed. Minorco already has a 29.9% stake in Gold Fields.
The fact that the takeover involves two foreign corporations does not mean that U.S. courts cannot block it. Mukasey said Minorco has enough business activities and contacts in the United States to make it subject to U.S. court jurisdiction.
He cited Minorco’s numerous investments in American companies, the fact that New York is the base for a third of the company’s board and the prospect of Minorco picking up even more U.S. companies through the merger.
Among Gold Fields holdings are ARC America in Irvine, a construction-materials firm, and a 49% stake in Newmont Mining Corp. in New York, this nation’s largest gold-mining firm.
Minorco has claimed that it intends to sell the Gold Fields interest in Newmont and another gold-mining subsidiary, Gold Fields of South Africa. It claims that such a sale would leave it with a 1.7% interest in world gold production.
But Gold Fields contends that Minorco already controls 20% of the gold market mainly through companies owned jointly with other partners or shareholders.
If no appeal is filed, the lawsuit would proceed toward trial on a permanent injunction, a long process that would benefit Gold Fields.
“If the choice is between being eaten alive tomorrow and having trial sometime in future, we prefer the latter,” Lewis Kaplan, the lead attorney for Gold Fields, said.
One Minorco lawyer said he was surprised by the court’s decision.
But of more concern to Minorco may be a decision by British officials on whether to open an investigation by the British Monopolies and Mergers Commission, an action that may take a year to complete and kill the takeover. A decision is expected by 7 this morning British time, a Gold Fields spokesman said.
Judge blocks Aetna-Humana health insurance merger on antitrust grounds
The proposed $34-billion merger of Aetna Inc. and Humana Inc. to form one of the nation’s largest health insurers was blocked Monday by a federal judge on antitrust grounds.
The ruling by U.S. District Judge John Bates in the District of Columbia was a victory for the Justice Department, which under the Obama administration sued to stop the deal.
In his decision, Bates agreed with the agency’s assertion that the deal would threaten competition, especially in the market for seniors who buy privately operated Medicare health plans called Medicare Advantage.
“Federal regulation would likely be insufficient to prevent the merged firm from raising prices or reducing benefits,” and there is “valuable head-to-head competition between Aetna and Humana which the merger would eliminate,” Bates wrote.
His decision raises questions about whether another huge health-insurance merger, Anthem Inc.’s proposed $48-billion purchase of Cigna Corp., might be in peril as well. The Justice Department also sued to block that deal for antitrust reasons the case is being heard by a different judge.
In the Aetna-Humana case, Aetna spokesman T.J. Crawford said the insurer was reviewing the opinion and “giving serious consideration to an appeal.” Humana had no immediate comment.
Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University, said an appeal “would be an uphill battle” because Bates’ ruling was “pretty clear and decisive” and the judge “didn’t give much credence to many of the [insurers’] analyses.”
Aetna, based in Hartford, Conn., agreed to its deal with Louisville, Ky.-based Humana in mid-2015. The deal calls for Aetna to acquire Humana for cash and stock valued at about $230 per Humana share.
Both companies’ stock prices fell immediately after Bates’ ruling but Humana’s shares then rallied they closed up 2.2% at $205.02 a share. Aetna’s shares finished down 2.7% at $119.20.
The combined company would have annual operating revenue of more than $115 billion and more than 33 million members in medical plans.
Aetna and Humana also said they expected to wring $1.25 billion in annual cost savings from the merger by 2018, which would “support our efforts to drive costs out of the system and offer more affordable products.”
But in his 158-page ruling, Bates wrote that “the Court is unpersuaded that the efficiencies generated by the merger will be sufficient to mitigate the anti-competitive effect for consumers” in markets the deal affects.
Some consumer groups praised the decision. “The Justice Department laid out strong proof at trial that the merger of these two health-insurance giants would have seriously harmed consumers across the country,” George Slover, senior policy counsel at Consumers Union, said in a statement.
Another critic of the deal, Sen. Richard Blumenthal (D-Conn.), called Bates’ ruling “a decisive victory for jobs, consumers and healthcare.”
“Mega-mergers like the proposed consolidation of Aetna and Humana raise prices, lower healthcare quality and kill jobs,” Blumenthal said in a statement.
The Justice Department’s lawsuits against the healthcare mergers, filed in July, were among the last major law-enforcement actions taken by the Obama administration, and it’s unclear how aggressively the Trump administration will pursue corporate deals on antitrust grounds.
During the campaign, President Trump often railed against big business and said in October that his administration would not approve AT&T Inc.’s $85.4-billion purchase of Time Warner Inc. “because it’s too much concentration of power in the hands of too few.”
Trump’s nominee for U.S. attorney general, Sen. Jeff Sessions (R-Ala.), said at his confirmation hearing that he would not have a problem blocking mergers.
“I have no hesitation to enforce antitrust law,” Sessions told members of the Senate Judiciary Committee on Jan. 10. “I have no hesitation, if the finding justifies it, to say that certain mergers should not occur, and there will not be political influence in that process.”
Times staff writer Jim Puzzanghera in Washington contributed to this report.
Column: U.S. judge finds that Aetna deceived the public about its reasons for quitting Obamacare
Aetna claimed this summer that it was pulling out of all but four of the 15 states where it was providing Obamacare individual insurance because of a business decision — it was simply losing too much money on the Obamacare exchanges.
Now a federal judge has ruled that that was a rank falsehood. In fact, says Judge John D. Bates, Aetna made its decision at least partially in response to a federal antitrust lawsuit blocking its proposed $34-billion merger with Humana. Aetna threatened federal officials with the pullout before the lawsuit was filed, and followed through on its threat once it was filed. Bates made the observations in the course of a ruling he issued Monday blocking the merger.
Aetna executives had moved heaven and earth to conceal their decision-making process from the court, in part by discussing the matter on the phone rather than in emails, and by shielding what did get put in writing with the cloak of attorney-client privilege, a practice Bates found came close to “malfeasance.”
Aetna tried to leverage its participation in the exchanges for favorable treatment from DOJ regarding the proposed merger.
U.S. District Judge John D. Bates
The judge’s conclusions about Aetna’s real reasons for pulling out of Obamacare — as opposed to the rationalization the company made in public — are crucial for the debate over the fate of the Affordable Care Act. That’s because the company’s withdrawal has been exploited by Republicans to justify repealing the act. Just last week, House Speaker Paul Ryan (R-Wis.) cited Aetna’s action on the “Charlie Rose” show, saying that it proved how shaky the exchanges were.
Bates found that this rationalization was largely untrue. In fact, he noted, Aetna pulled out of some states and counties that were actually profitable to make a point in its lawsuit defense — and then misled the public about its motivations. Bates’ analysis relies in part on a “smoking gun” letter to the Justice Department in which Chief Executive Mark Bertolini explicitly ties Aetna’s participation in Obamacare to the DOJ’s actions on the merger, which we reported in August. But it goes much further.
Among the locations where Aetna withdrew were 17 counties in three states where the Department of Justice asserted that the merger would produce unlawfully low levels of competition on the individual exchanges. By pulling out, Aetna could say that it wasn’t competing in those counties’ exchanges anyway, rendering the government’s point moot: “The evidence provides persuasive support for the conclusion that Aetna withdrew from the on-exchange markets in the 17 complaint counties to improve its litigation position,” Bates wrote. “The Court does not credit the minimal efforts of Aetna executives to claim otherwise.”
Indeed, he wrote, Aetna’s decision to pull out of the exchange business in Florida was “so far outside of normal business practice” that it perplexed the company’s top executive in Florida, who was not in the decision loop.
“I just can’t make sense out of the Florida dec[ision],” the executive, Christopher Ciano, wrote to Jonathan Mayhew, the head of Aetna’s national exchange business. “Based on the latest run rate data . . . we are making money from the on-exchange business. Was Florida’s performance ever debated?” Mayhew told him to discuss the matter by phone, not email, “to avoid leaving a paper trail,” Bates found. As it happens, Bates found reason to believe that Aetna soon will be selling exchange plans in Florida again.
As for Aetna’s claimed rationale for withdrawing from all but four states, Bates accepted that the company could credibly call it a “business decision,” since the overall exchange business was losing money he just didn’t buy that that was its sole reason. He observed that the failings in the marketplace existed before Aetna decided to withdraw, but that as late as July 19, the company was still planning to expand its footprint to as many as 20 states. In April, top executives had told investors that Aetna had a “solid cost structure” in Florida and Georgia, two states it dropped.
While the Department of Justice was conducting its investigation of the merger plans but before the DOJ lawsuit was filed, “Aetna tried to leverage its participation in the exchanges for favorable treatment from DOJ regarding the proposed merger,” Bates observed. During a May 11 deposition of Bertolini, an Aetna lawyer said that if the company “was not ‘happy’ with the results of an upcoming meeting regarding the merger, ‘we’re just going to pull out of all the exchanges.’”
In private talks with the DOJ, Aetna executives continually linked the two issues, even while they were telling Wall Street that the merger was “a separate conversation” from the exchange business. Bertolini seemed almost to take the DOJ’s hostility to the merger personally: “Our feeling was that we were doing good things for the administration and the administration is suing us,” he said in a deposition.
Bates found “persuasive evidence that when Aetna later withdrew from the 17 counties, it did not do so for business reasons, but instead to follow through on the threat that it made earlier.”
The threat certainly was effective in terms of its impact on the Affordable Care Act, since Aetna’s withdrawal has become part of the Republican brief against the law. That it says so much more about Aetna executives’ honesty and integrity probably won’t get cited much by GOP functionaries trying to repeal the law. Aetna is at least partially responsible for placing the health coverage of more than 20 million Americans in jeopardy that it did so at least partially to promote a merger that would bring few benefits, if any, to its customers is an additional black mark.
If there’s a saving grace in this episode, it’s that the company’s goal to protect the merger hasn’t worked, so far. The DOJ brought suit, and Bates has now thrown a wrench into the plan. Aetna has said it’s considering an appeal, but the merger is plainly in trouble, as it should be.
Samsung's Lee indicted over controversial 2015 merger
SEOUL – South Korean prosecutors on Tuesday indicted Samsung heir Lee Jae-yong on charges of stock price manipulation and other financial crimes, setting up what could be a protracted legal battle to determine whether the 52-year-old billionaire illegally cemented his control over the business giant.
Lee’s attorneys denied the charges, which were also filed against 10 other current and former Samsung executives, describing them as “investigators’ one-sided claims.” They maintain that a controversial 2015 merger between two Samsung affiliates that helped Lee increase control over the group’s crown jewel, Samsung Electronics, the world’s biggest producer of computer chips and smartphones, was “normal business activity.”
A Seoul court earlier rejected the prosecutors’ request to arrest Lee, who stepped into his leadership role after his father, Samsung Electronics Chairman Lee Kun-hee, fell ill in May 2014.
The charges against Lee and the other Samsung officials include stock price manipulation, breach of trust, and auditing violations related to the 2015 merger between Samsung C&T Corp. and Cheil Industries, said Lee Bok-hyun, a senior official from the Seoul Central District Prosecutors’ Office.
Lee Jae-yong was sentenced to five years in prison in 2017 for offering 8.6 billion won ($7 million) in bribes to former South Korean President Park Geun-hye and one of her longtime confidants while seeking government support for the 2015 merger. It went ahead despite opposition from some shareholders who said the deal unfairly benefited the Lee family.
Park, who was ousted from office in March 2017, is currently serving a decades-long prison term after being convicted of bribery, abuse of power and other corruption charges.
Lee was freed in February 2018 after the Seoul High Court reduced his term to 2 ½ years and suspended his sentence, overturning key convictions. However, months later the Supreme Court sent the case back to the High Court, saying that the amount of bribes Lee was judged to have offered was undervalued.
Prosecutors say Lee and other Samsung officials caused damage to shareholders of Samsung C&T, which was a major construction company, by manipulating corporate assets to engineer a merger that was favorable to Cheil, an amusement park and clothing company where Lee was the biggest shareholder.
Prosecutors also said the Samsung executives, through accounting fraud, inflated the value of Samsung Biologics, a Cheil subsidiary, by more than 4 trillion won ($3 billion) in an effort to make the deal look fair.
Lee’s lawyers said prosecutors failed to provide clear evidence to support the charges.
“The plaintiffs will sincerely participate in the court trials and prove why the prosecution’s indictment was unjust step by step,” Lee’s legal team said in a statement.
Some legal experts say Lee could be sentenced to another term in jail if convicted again. But South Korean corporate leaders often receive relatively lenient punishments for corruption, business irregularities and other crimes, with judges often citing concerns for the country’s economy.
In May, Lee, who runs the group as vice chairman of Samsung Electronics, expressed remorse over causing public concern but did not admit to wrongdoing regarding his alleged involvement in the corruption scandal surrounding Park or accusations of financial crimes.
He then promised to end heredity transfers of control of Samsung, promising not to pass the management rights he inherited from his father to his children. He also said the group would stop suppressing employee attempts to organize unions.
Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
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