US food giant Sysco announces a $29 billion agreement for catering company Restaurant Depot
Summary:
- The deal will be financed with $21 billion in new and hybrid debt, with an additional $1 billion on hand.
- Sysco shares are down roughly 8% in premarket trading.
- Restaurant Depot shareholders will own approximately 16% of Sysco following the transaction.
- Sysco suspends share repurchase program amid acquisition
Sysco (SYY.N) will buy catering supplier Jetro Restaurant Depot for $29 billion, including debt, boosting its presence among price-conscious independent eateries.
Sysco’s shares, which have a market valuation of $39.2 billion, tumbled almost 8% in premarket trade after the firm announced that it will finance the acquisition with $21 billion in new and hybrid debt, as well as $1 billion in cash and equity.
The acquisition would be the latest large deal across consumer-facing industries, following recent merger talks involving companies such as Unilever, Estee Lauder, and Pernod Ricard. Firms are seeking scale to withstand weakening demand and stubbornly increasing costs.
CASH AND CARRY HEFT
Jetro Restaurant Depot, a family-owned business, offers a wholesale cash-and-carry model where clients pay upfront for food, beverages, and takeaway containers. This complements Sysco’s delivery network that serves restaurants, hospitals, and hotels.
Sysco and Jetro Restaurant Depot will expand access to affordable, fresh food products and provide more choice and convenience for small independent restaurants and consumers, according to CEO Kevin Hourican in a statement. Restaurant Depot has approximately 166 warehouse locations across 35 U.S. states.
Restaurant Depot shareholders will receive $21.6 billion in cash and 91.5 million Sysco shares, or approximately 16% of the merged company, according to the companies.
Last year, US Foods (USFD.N) halted merger talks with Performance Food (PFGC.N), which would have combined the nation’s No. 2 and No. 3 food-service distributors to compete with industry leader Sysco and decrease costs.
In June 2015, a US federal judge granted the Federal Trade Commission’s attempt to prevent Sysco’s $3.5 billion acquisition of US Foods. The regulator said that the agreement would create a behemoth, potentially raising costs on items supplied to national customers.
Sysco expects the transaction to increase profits per share by a mid- to high-single-digit percentage within the first year of closing, by the third quarter of fiscal 2027.
The corporation has paused share repurchases and confirmed its yearly expectations. Sysco, a supplier of steaks, fillets, and frozen items to fast-food chains like KFC and Subway, upped its full-year profit prediction earlier this year, citing stable demand despite macroeconomic constraints.