Sysco and US Foods announced an agreement to merge, creating a world-class foodservice company. 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.
Goldman, Sachs & Co. is serving as financial advisor to Sysco and Wachtell, Lipton, Rosen & Katz; and Arnall Golden & Gregory are serving as its legal advisors. Simpson Thacher & Bartlett and Debevoise & Plimpton are serving as US Foods’ legal advisors.
Bill DeLaney, Sysco president and CEO, will lead the combined company, which will continue to be named Sysco and headquartered in Houston, Texas. At closing, Sysco will have estimated annual sales of approximately $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.
After completion of the transaction, the equity holders of US Foods will own approximately 87 million shares, or roughly 13% of Sysco. A representative of each of US Foods’ majority shareholders, affiliates of Clayton, Dubilier & Rice and Kohlberg Kravis Roberts & Co., will join Sysco’s board of directors upon closing.
DeLaney said, “As we continue on our transformational journey at Sysco, 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. 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. In particular we look forward to welcoming US Foods’ talented employees and continuing to invest in the development of all of our people. Together we will strive to enhance shareholder value by providing our customers with highly differentiated products and services.”
John Lederer, president and CEO of US Foods, said, “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.”
At closing, the combined companies are expected to have annualized sales of approximately $65 billion and generate operating cash-flows of approximately $2 billion. Sysco will purchase the outstanding equity of US Foods and assume or refinance its net debt in a transaction with an enterprise value of $8.2 billion. This represents a 9.9x multiple of US Foods’ trailing 12-month (as of September 28, 2013) adjusted EBITDA of $826 million. Additionally, 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.
The transaction, which is expected to close in the third quarter of calendar year 2014, is subject to customary closing conditions and regulatory approvals, including antitrust approval.
Sysco is a global seller, marketer and distributor of food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home.
US Foods is a U.S. food company and distributor.