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When a merger fails expenses can mount

In previous posts we have covered some of the benefits to businesses that are involved in an acquisition or merger. But what happens when a plan does not go through? Two food businesses could be facing this reality now and at least one of the businesses could take a big financial hit if the deal is not completed.

U.S. food distributors Sysco and US Foods are seeking to merge. Despite all of the time and energy put into the deal, there is a chance that the U.S. government will not let the deal go forward. This past February the Federal Trade Commission actually took legal action to block the merger by filing a lawsuit. The reason behind that action is that according to the FTC, if the merger was to go through, it would leave Sysco with 75 percent of the food distribution market in the U.S. In turn, this could result in prices rising.

Sysco and US Foods want the merger to go through because the businesses believe that it would result in synergies of $600 million annually, for each of the following three to four years following the closing of the deal.

As is often the case when a merger does not go through, Sysco stands to lose a lot of money. Among other costs it has accrued in the course of planning the deal, the following has been spent by Sysco:

  • $53 million in technical changes that make it possible for the businesses' computer systems to communicate.
  • $100 million in financing the deal
  • $258 million to hire advisers and on integration planning

To try to avoid a situation such as this one it is important that businesses determine ahead of time the likelihood of success. That is just one of many of the ways a lawyer can be of assistance in a potential merger.

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