NEW YORK: An antitrust food fight threatens to mess up America’s mergers and acquisitions (M&A) boom. A United States federal court has at least temporarily halted Sysco Corp’s US$3.5 billion (RM13.1 billion) US Foods purchase, saying a merger between the nation’s largest food-service companies would probably harm competition despite the existence of some local rivals. A similar argument may quell other deals in the works, and one already in process: Staples’ US$6.3 billion takeover of Office Depot Inc.

For now, the merger of the two biggest office supply chains looks like a financial winner. Staples Inc and Office Depot said they expect annual cost savings of US$1 billion by the third year after the stock-and-cash transaction closes. That’s worth about US$6 billion to investors today, assuming a 35% tax rate. No wonder Office Depot shareholders approved the transaction last Friday.

Trustbusters may be less enthusiastic, though. The companies are the respective No 1 and No 2 brick-and-mortar retailers of office needs like printer cartridges, binders and, well, staples. The Federal Trade Commission (FTC) had already nixed a proposed deal between them in 1997.

Amazon.com Inc and other online retailers have since snatched away consumer business, and the likes of Wal-Mart Stores Inc offer cheaper offline options. That’s why the FTC approved Office Depot’s 2013 acquisition of OfficeMax Inc without requiring store closures.

More worrisome are nationwide businesses and government customers that make bulk purchases over several years in exchange for deep discounts. The merger could soften that competition. Amazon has a site catering to businesses, but sellers like CostcoWholesale Corp aren’t national distributors that can ensure the consistent delivery of products the way Staples-Office Depot could.

A similar issue seems to have tripped up Sysco. It argued that merging with US Foods would reduce costs while stiff local competition would keep prices down. The FTC countered, however, that only those two companies could serve sprawling hotel and restaurant chains, and eliminating one would cut national competition. The regulator even refused to accept Sysco’s offer to sell distribution centres with nearly US$5 billion in sales.

The court’s reasons for blocking the deal pending further review won’t become entirely clear until it publicly releases its full opinion. Its brief order suggests the food transaction is a goner, though, and that Staples and Office Depot have a problem. The economics of their merger may still look tasty, but the legal precedent has soured. — Reuters

This article first appeared in The Edge Financial Daily, on June 30, 2015.