Compass Lexecon's Client the FTC Prevails as Court Blocks Proposed Sysco/US Foods Merger

Court Relies Heavily on Compass Lexecon Expert Dr. Mark Israel, Citing His Testimony In Nearly Every Part of Its Opinion

On June 23, 2015, Judge Amit Mehta of the U.S. District Court for the District of Columbia granted a preliminary injunction enjoining the merger of the two largest broadline foodservice distributors in the United States, Sysco, and U.S Foods ("USF"). The court's decision relied heavily on the work of two Compass Lexecon experts, Dr. Mark Israel and Rajiv Gokhale.

Dr. Mark Israel submitted multiple reports and provided deposition and courtroom testimony over several days on behalf of Plaintiff U.S. Federal Trade Commission ("FTC"). The court relied heavily on Dr. Israel's reports and testimony in concluding that the merger of Sysco and USF would likely cause anticompetitive harm to customers in the national and local broadline markets. Indeed, the court's 127-page opinion referenced Dr. Israel's testimony nearly 200 times, citing to Dr. Israel in support of nearly every aspect of the opinion. For example:

• On product market definition, the court's opinion states: "Having weighed the competing expert testimonies and considered them in light of the evidentiary record as a whole, the court finds Dr. Israel's aggregate diversion analysis and conclusion to be more persuasive than that advanced by Defendants' expert..."
• On local market definition, the court's opinion states: "[G]iven the absence of an industry standard for defining a local market, Dr. Israel's methodology provides a practical approach and solution to an otherwise thorny problem. Dr. Israel's premise in defining these markets—that driving distance matter—is amply supported by the record and common sense." And: "The court therefore concludes that the relevant local geographic markets are the areas of overlap resulting from Dr. Israel's 75 percent draw methodology."
• On competitive effects for national customers, the court's opinion states: "[T]he court finds that Dr. Israel's RFP/bidding analysis is more persuasive than [the Defendants' expert's] switching study… Dr. Israel's analysis better captures instances of actual competition across a more representative cross-section of national customers over a longer period of time."
• On competitive effects for local customers, the court's opinion states: "[T]he court found [Dr. Israel's] RFI analysis especially compelling; indeed, Defendants did little to contest it." And: "[T]he court finds that the empirical evidence supports the conclusion that Sysco and USF are close competitors in local markets."
• On the inadequacy of the proposed divestiture, the court's quotes Dr. Israel's report, stating that " '[T]he best case scenario under the divestiture is the emergence of a significantly smaller competitor than USF even several years into the future[.]' "

Rajiv Gokhale also submitted expert reports and provided deposition and courtroom testimony on behalf of the FTC. Mr. Gokhale's work illuminated key flaws in the analysis of the Defendants' expert with regard to merger efficiencies. Mr. Gokhale's work was particularly influential in showing that a large proportion of the merger efficiencies claimed by the Defendants were not merger-specific. As stated in the court's opinion: "[Mr. Gokhale] opined that at least 65 percent of Defendants' efficiencies were not merger specific[,]" which aligns with the court's opinion that "Defendants have not shown that that [efficiencies] amount, or at least a substantial portion of it, could not be achieved independently of the merger."

Dr. Israel was supported by a Compass Lexecon team led by Loren Smith in the Washington, D.C. office. The Compass Lexecon team also included Yair Eilat, Jonathan Bowater, Jeff Raileanu, Wei Tan, Maria Stoyadinova, Ka Hei Tse, Bo Bourke, Bich Ly, Rohini Sadarangani, Piyal Hyder, Phil Wolf, Rob Oandasan, Gloriana Alvarez, Andrea Ortu, and Alex Asancheyev. The Compass Lexecon team worked closely with FTC attorneys Stephen Mohr and Sophia Vandergrift and FTC economist Dan Hanner.

Mr. Gokhale was supported by Paul Anderson and Margaret Hlebowitsh. The Compass Lexecon team worked closely with FTC attorneys Krisha Cerilli and Kristian Rogers and FTC financial analyst Deepak Chandra.