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.”
The 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.
The equity holders of Rosemont, Illinois-based US Foods will own about 13% of Sysco. A representative of each of US Foods’ majority shareholders, affiliates of Clayton, Dubilier & Rice LLC and Kohlberg Kravis Roberts & Co., will join the board upon closing.
KKR agreed to buy US Foods for $7.1 billion from Royal Ahold NV in 2007.
With the assumption of US Foods’ $4.7 billion in debt, today’s deal is valued at about $8.2 billion. Sysco also said it has secured fully committed bridge financing.
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.