Sysco Pays $8.2 Billion for US Foods

Expects to see synergies of $600 million after three or four years

Sysco Pays $8.2 Billion for US Foods

HOUSTON and ROSEMONT, Ill. -- The top executives for both Sysco Corp. and US Foods say the coming merger of the two foodservice suppliers will allow each to maximize their individual strengths by increasing their reach and scale.

“This transaction will position us to significantly accelerate our progress in achieving the vision we have for our company: to be our customers' most valued and trusted business partner,” said Bill DeLaney, Sysco president and chief executive officer.

Sysco Corp. and US Foods agreed Monday to merge the two companies, creating the largest foodservice-supply company in the country, as reported in a Raymond James/CSP Daily News Flash. The total enterprise value of the transaction is approximately $8.2 billion, and the combination has been approved by the Board of Directors of each company.

DeLaney will lead the combined company, which will continue to be named Sysco and headquartered in Houston. At closing, Sysco will have estimated annual sales of approximately $65 billion.

“Sysco and US Foods have highly complementary core strengths, including a broad product portfolio and passionate food people deeply committed to customer service, quality-assured products and safety,” Delaney said in a statement. “Together we will strive to enhance shareholder value by providing our customers with highly differentiated products and services."

This transaction will bring together Sysco and US Foods' complementary strengths, including talented and dedicated associates, a broad product portfolio, supply-chain excellence and a commitment to continuous improvement, the companies stated. Going forward, Sysco will continue to create value for customers through insights-driven product innovation and expanded services that go beyond food, according to the companies. Increased geographic coverage and scale will enhance flexibility and responsiveness as the new company provides unique, on-trend food products that save customers time and improve performance, the company stated.

"Combining and maximizing the significant strengths of two outstanding companies is certain to be of tremendous advantage in supporting our customers as they tackle the challenges of today's demanding environment,” stated John Lederer, president and chief executive officer of US Foods.

By buying one of its largest rivals, Sysco will solidify its position as the reigning giant of food distribution, according to a New York Times report. The company, whose trucks move millions of pounds of frozen food and kitchen supplies around the country, expects its annual revenue to grow by 46 percent, to $65 billion.

Sysco will pay approximately $3.5 billion for the equity of US Foods, comprising $3 billion of Sysco common stock and $500 million of cash. As part of the transaction, Sysco will also assume or refinance US Foods' net debt, which is currently approximately $4.7 billion, bringing the total enterprise value to $8.2 billion. Sysco has secured fully committed bridge financing and expects to issue permanent financing prior to closing.

The transaction is expected to generate significant strategic benefits and cost synergies, achieving annual synergies of at least $600 million after three to four years, primarily stemming from supply chain efficiencies, merchandising activities, and overlapping general and administrative functions. The transaction is expected to be immediately accretive to earnings after adjusting for transaction-related costs and amortization of intangibles.

Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the foodservice and hospitality industries. The company operates 193 distribution facilities serving approximately 425,000 customers. For Fiscal Year 2013 that ended June 29, 2013, the company generated record sales of more than $44 billion.

US Foods is a leading food distributor to independent and multi-unit restaurants, healthcare and hospitality entities, government and educational institutions. With approximately $22 billion in annual revenue, the company offers more than 350,000 products, including high-quality, exclusive brands, such as the innovative Chef's Line, a time-saving, chef-inspired line of scratch-quality products, and Rykoff Sexton, a premium line of specialty ingredients sourced from around the world. US Foods is headquartered in Rosemont, Ill., and jointly owned by affiliates of Clayton, Dubilier & Rice LLC and Kohlberg Kravis Roberts & Co. L.P.

Goldman, Sachs & Co. is serving as financial advisor to Sysco and Wachtell, Lipton, Rosen & Katz and Arnall, Golden & Gregory LLP are serving as its legal advisors in the deal. Simpson Thacher & Bartlett LLP and Debevoise & Plimpton LLP are serving as US Foods' legal advisors.