Sysco To Buy US Foods For $8.2 Bln, Including Debt

(RTTNews) - Food-distribution giant Sysco Corp. (SYY) has agreed to acquire peer US Foods for about $3.5 billion in cash and stock, the two companies said Monday. Sysco will also refinance US Foods' net debt of about $4.7 billion, bringing the total enterprise value of the deal to $8.2 billion.

Shares of Sysco were gaining almost 24 percent in the regular trading session following the announcement.

Under the deal, Houston, Texas-based Sysco will pay $3 billion in common stock and $500 million in cash for the acquisition. The transaction has been approved by the board of directors of both the companies.

Privately held US Foods offers more than 350,000 products, including brands such as Chef's Line, a chef-inspired line of scratch-quality products, and Rykoff Sexton, a premium line of specialty ingredients sourced from around the world.

The Rosemont, Illinois-based company employs about 25,000 people in more than 60 locations nationwide. The company is jointly owned by affiliates of private equity firms Clayton, Dubilier & Rice LLC as well as Kohlberg Kravis Roberts & Co. L.P.

The transaction is expected to conclude in the third quarter of calendar year 2014. Sysco said it has secured fully committed bridge financing and expects to issue permanent financing prior to closing of the transaction.

Bill DeLaney, president and chief executive officer of Sysco, will lead the combined company that will continue to be named Sysco and be headquartered in Houston, Texas. Following completion of the transaction, shareholders of US Foods will own about 87 million shares, or roughly 13 percent of Sysco.

Sysco said that a representative of each of US Foods' majority shareholders, affiliates of Clayton, Dubilier & Rice and Kohlberg Kravis Roberts & Co., will join the company's board of directors upon closing.

The combined company is expected to have annualized sales of about $65 billion and generate operating cash flows of about $2 billion, at closing.

Sysco expects the transaction to generate significant strategic benefits and cost synergies. This includes annual cost synergies of at least $600 million after three to four years, mostly from supply chain efficiencies, merchandising activities, and overlapping general and administrative functions.

The company also expects the transaction to immediately add to earnings, after adjusting for transaction-related costs and amortization of intangibles.

Goldman, Sachs & Co. is serving as financial advisor to Sysco, while Wachtell, Lipton, Rosen & Katz and Arnall, Golden & Gregory LLP are serving as its legal advisors.

For US Foods, Simpson Thacher & Bartlett LLP and Debevoise & Plimpton LLP are serving as its legal advisors.

In Monday's regular trading session, SYY is trading at $42.46, up 8.15 or 23.75 percent on a volume of 6.06 million shares.