Some financial analysts predict Sysco Corp. will have to divest part of its operations before the government will approve its planned purchase of competitor U.S. Foods, but the distributor’s chief executive said he’s not worried.
A joint statement issued by the companies said it will be business as usual for their suppliers and customers until the deal closes in the third quarter of 2014. Sysco president and chief executive officer Bill DeLaney will continue to lead the combined companies, which will be known as Sysco Corp.
DeLaney and other company officials discussed the multi-billion dollar deal Dec. 9 during a conference call. It includes $3.5 billion in stock and cash for the Rosemont, Ill.-based U.S. Foods and another $4.7 billion in net debt that Sysco will assume.
U.S. Foods officials did not participate in the call and did not return calls for additional comments.
The companies launched a special Web page — www.bestofbothinfood.com/suppliers — to reassure suppliers and customers that there won’t be any disruptions in filling orders or meeting existing contract obligations.
“You can expect that there will be no changes in the manner you interact with your designated contacts at Sysco and U.S. Foods. When the transaction is completed, we will move forward as one company, which will continue to be named Sysco,” according to the Web page.
Houston-based Sysco, the parent company of fresh produce distributor FreshPoint Inc., has 193 distribution centers in the U.S. and Canada, including 31 operated by FreshPoint. U.S. Foods has 60 locations across the country. Initially, all of the locations will continue operations as normal at until the deal closes, DeLaney said during the conference call.
With Sysco and U.S. Foods No.1 and No.2 in terms of market share, according to the Nielsen Group and Technomic Inc., the acquisition would secure Sysco’s position as the largest food distributor in the country.
DeLaney said potential anti-trust issues might mean some divestitures, “but we still see this as a very attractive deal.”
“I’m not going to get into the specifics of the FTC perspective,” DeLaney said. “We think our market share is about 18% and they’re about half our size. So, mathematically, you’re talking over 25% give or take.”
The managing director of BB&T Capital Markets told The New York Times he thought Sysco would be forced to divest.
“In certain regions the combined market share is going to raise some flags,” Andrew Wolf told The Times. “They’re going to have to make some divestitures.”
DeLaney said the two companies do have some overlap in their distribution operations as well as sales and marketing staffs, but there are no plans to close locations or reduce staff at this time. He said the goal is to retain all customers of both entities, and that will take a lot of staff and infrastructure.
“There is some overlap, ... but maybe not as much as you might think,” DeLaney said.
After the transaction, equity holders of U.S. foods will own about 13% of Sysco’s shares. Representatives from each of U.S. Foods’ majority stockholders will join Sysco’s board.
Officials predict the combined companies will have annual sales of about $65 billion and generate operating cash flow of about $2 billion.