Sysco to Acquire US Foods for $3.5 Billion, Uniting Distributors
Sysco to Acquire US Foods for $3.5 Billion, Uniting Distributors
Sysco agreed to acquire closely held US Foods for $3.5 billion, adding brands from Cattleman’s meat to Devonshire desserts, in the largest food-distribution deal in eight years in North America. The shares jumped the most since at least 1980.
Sysco will pay $3 billion in common stock and $500 million in cash for US Foods to owners including KKR & Co. and Clayton, Dubilier & Rice LLC. Bonds of US Foods soared to a record.
The deal bolsters Sysco’s position as North America’s largest distributor of food to restaurants, expanding its geographical reach and creating supply chain cost savings. The combined business, with about $65 billion in annual sales, will be led by Sysco Chief Executive Officer Bill DeLaney.
“There will be cost savings opportunities for Sysco and they didn’t overpay, which the market is reacting favorably to,” Jack Russo, an analyst an Edward Jones & Co., said in an interview. The companies cater to the same customers, so this deal is about becoming as efficient as possible by “becoming one large big company.”
With the assumption of US Foods’ debt, the deal is valued at about $8.2 billion. That represents a multiple of 9.9 times US Foods’ adjusted earnings before interest, depreciation and amortization, according to the statement.
In seven purchases of food distribution and food-services assets of more than $1 billion in the past decade, buyers paid a median of 10 times unadjusted Ebitda, data compiled by Bloomberg show. Sysco didn’t say how it adjusted US Foods’ Ebitda.
KKR and Clayton, Dubilier & Rice agreed to buy US Foods for $7.1 billion from Royal Ahold NV in 2007.
The acquisition is expected to be completed late next year. Sysco currently has about 18 percent of the U.S. market and the new combined business would have about a quarter of it.
The equity holders of Rosemont, Illinois-based US Foods will own about 13 percent of Sysco. A representative of each of US Foods’ majority shareholders, affiliates of Clayton, Dubilier & Rice and KKR will join the board upon closing.
Today’s transaction is the largest in the food wholesale and distribution industry since Albertsons LLC was sold to several buyers for $16.1 billion in 2006, according to data compiled by Bloomberg. Sysco was the most acquisitive company in the industry in the past 10 years in North America, with 27 deals, the data also show.
Sysco’s customers include Wendy’s Co. The deal is expected to generate cost savings of at least $600 million after three to four years, coming from supply chain efficiencies and merchandising.
Goldman, Sachs & Co. is serving as financial adviser to Sysco and Wachtell, Lipton, Rosen & Katz and Arnall, Golden & Gregory LLP are serving as its legal representation. Simpson Thacher & Bartlett LLP and Debevoise & Plimpton LLP are serving as US Foods’ legal advisers.
Source: Bloomberg
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