) has announced its decision to buy U.S. Foods in a deal
that has a total enterprise value of approximately $8.2 billion,
inclusive of debt. The combined company will create one of the
largest food companies in the country.
Per the deal, Sysco will pay approximately $3.5 billion, which
would include common stock worth $3 billion and $500 million of
cash for the equity of U.S. Foods. In addition, Sysco will also
assume the latter's outstanding debt of about $4.7 billion. The
deal has been approved by the boards of both companies and is
expected to close in the third quarter of 2014. Sysco expects
immediate accretion to earnings per share after adjusting for
transaction-related costs and amortization of intangibles.
Sysco has secured a fully committed bridge loan to finance the
deal and expects to issue a long-term debt to repay the bridge
loan. At the end of the first quarter of fiscal 2014, Sysco had
cash and cash equivalents of $359.5 million. Total debt stands at
$3.13 billion, resulting in a net debt position of $2.77 billion.
Including the $5.2 billion of cash and debt ($500 million of cash
and $4.7 billion of debt) to buy U.S. Foods, net debt will now be
Sysco is also committed to paying a quarterly dividend of 28
cents per share, as announced prior to the deal. After the
completion of the deal, Sysco will receive annual synergies of at
least $600 million per annum over the next three or four
The deal is expected to be a strategic fit for both Sysco and
US Foods, as together they are expected to improve efficiencies,
particularly in supply chain, merchandising and general and
Sysco has carried out various acquisitions over the years to
grow its distribution network and customer base and boost
long-term growth. During fiscal 2013, the company acquired 14
companies, which represent annualized sales in excess of $1
billion. Sysco acquired foodservice operations in Nassau,
Bahamas; San Francisco, San Jose, and Stockton, Calif.; Ontario
and Quebec, Canada; Orlando, Fla; Dublin, Ireland; St. Cloud,
Minn.; Co. Down, Northern Ireland; Greenville, Ohio and Houston,
Texas. The company expects to achieve 0.5%-1% sales growth
through acquisitions in the long term. Other than sales growth,
these acquisitions expand Sysco's presence in the international
markets and improve product assortment.
We believe that the Sysco-US Foods deal will provide excellent
value in an increasingly competitive market. The combined
companies are expected to have annualized sales of approximately
$65 billion and generate operating cash flow of approximately $2
Sysco currently carries a Zacks Rank #3 (Hold). Better-ranked
stocks in the food industry include
Omega Protein Corp
ConAgra Foods Inc.
Pinnacle Foods Inc
). While Omega sports a Zacks Rank #1 (Strong Buy), ConAgra and
Pinnacle hold a Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
OMEGA PROTEIN (OME): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
SYSCO CORP (SYY): Free Stock Analysis Report
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