Canadian Manufacturing

Sysco buying rival US Foods for about $3.5B in cash, stock

by The Associated Press   

Canadian Manufacturing
Operations Food & Beverage mergers and acquisitions united states

Sysco will pay $3-billion in common stock, $500-million in cash and assume $4.7-billion in debt

HOUSTON—One of the largest food supply companies is buying one of its key rivals, creating an even larger, global distribution company.

Sysco is buying privately held US Foods for about $3.5-billion in cash and stock.

When the deal closes, Sysco expects the addition of US Foods to boost its annual sales by about 46 per cent to around $65-billion.

Houston’s Sysco will pay $3-billion in common stock and $500-million in cash.


It will also assume or refinance about $4.7-billion in debt.

That puts the total value of the deal at about $8.2-billion.

Sysco president and CEO Bill DeLaney said that the two companies have highly complementary core strengths including large product portfolios.

For the fiscal year that ended in June, Sysco’s sales totalled $44.41-billion.

It trucks food and cooking supplies to about 425,000 customers through 193 locations in the United States, Bahamas, Canada, Ireland and Northern Ireland.

US Foods’ customers include independent and chain restaurants, health care and hospitality companies, and government and educational institutions.

Major stakeholders in the company, based just outside of Chicago, in Rosemont, Ill., include Clayton, Dubilier & Rice LLC and Kohlberg Kravis Roberts & Co. LP.

Representatives from both of those investment firms will join Sysco’s board.

When the deal closes, US Foods shareholders will own about 87 million shares, or about 13 per cent, of Sysco’s common stock.

The buyout has been approved by the boards of both companies.

Sysco said it expects the deal, which is set to close in the third calendar quarter of 2014, to immediately boost its profit after adjusting for acquisition-related costs and expenses.

It’s also expected to create annual cost savings of at least $600-million after three or four years.

Moody’s Investors Service placed all of Sysco’s ratings, including its investment-grade “A1” long-term rating, under review for possible downgrade.

Moody’s said that while the deal makes sense and the price seems fair, a downgrade is likely given the amount of debt Sysco will assume.


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