By Diane Bartz
WASHINGTON (Reuters) - Minnesota's attorney general expressed concern about the merger of food distribution giants Sysco Corp and US Foods [USFOO.UL], saying it was questionable whether any divestiture could restore competition lost in the transaction.
Minnesota Attorney General Lori Swanson said in a Dec. 10 letter that her office had heard complaints from Minnesota-based restaurants that the $3.5 billion acquisition would leave them "fewer choices among distributors and potentially resulting in higher prices for consumers."
The letter was addressed to Federal Trade Commission Chairwomen Edith Ramirez. The FTC is looking into the deal to ensure it complies with antitrust law.
Sysco announced in December 2013 that it would buy US Foods from its private equity owners in a deal that would combine the two largest U.S. food distributors.
Minnesota is not a part of a group of about 25 U.S. states, including Florida and Indiana, which are also reviewing the deal because the companies are the only two national food distribution companies. Both companies distribute foods to restaurants, hotels, hospitals, schools and other institutions.
Sysco, with annual revenue of about $44 billion, is the largest operator in the U.S. food distribution business. US Foods holds the No. 2 spot.
Swanson noted that clout in her letter, saying that schools, universities and hospitals frequently take bids from both companies.
Sysco is negotiating with a smaller, regional company, Performance Food Group, in hopes that it can sell Performance sufficient assets, including distribution centers, that the FTC would be reassured that competition would not be lost.
Performance is owned by Blackstone Group.
Most of the distribution centers are in the western United States, where PFG is weak, and one is in California, according to two sources knowledgeable about the talks.
But Swanson expressed skepticism that asset sales would be enough. "It is questionable whether any amount of divestiture can recreate the loss of US Foods as a strong competitor in the broadline food distribution market," she wrote in the letter.
The Minnesota attorney general stopped short of asking the FTC to block the deal, saying, "I encourage the Commission to closely scrutinize the proposed merger."
Swanson has no formal say in the final FTC decision.
Asked about the letter, Sysco spokesman Charley Wilson said, "We continue to have constructive conversations with the FTC in its review of our proposed merger with US Foods." He refused to comment further.