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Sysco to Buy US Foods for $3.5 Billion, Uniting Distributors

December 9, 2013

(Updates shares in fifth paragraph.)

 

Dec. 9 (Bloomberg) -- Sysco Corp. 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, according to a statement today. 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."

Shares of Houston-based Sysco surged 8.5 percent to $37.21 at 2:29 p.m. in New York, after advancing as much as 26 percent for the biggest intraday jump since at least July 1980. The stock had risen 8.4 percent this year through Dec. 6, compared with a 27 percent gain for the Standard & Poor’s 500 Index.

Russo has a hold rating on the shares.

 

KKR, CD&R

 

KKR and CD&R acquired US Foods for $7.2 billion from Royal Ahold NV in 2007. The two firms, which own 98 percent of US Foods, will reap about a $1.25 billion, or 55 percent, partly realized gain on their combined $2.25 billion equity investment, according to two people familiar with the situation who requested anonymity because the matter is private.

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