Sysco's Acquisition of U.S. Foods
Foods distributor Sysco (SYY) could be the Constellation Brands of 2014. The company appears to have cut an opportunistic acquisition of competitor U.S. Foods, owned by private equity firms Clayton, Dubilier & Rice and KKR after a $7.1 billion leveraged buyout in 2007. Like Crown Imports, U.S. Foods may be an asset that went to the auction block with a hurried seller and few likely buyers. The acquisition also is likely to face significant regulatory review.
In the case of Sysco and U.S. Foods, a merger would combine the top two foods distributors in the U.S. While that might raise the ire of some antitrust regulators, the industry may be under the competitive and cost pressures that allow a deal to squeak through, albeit with some give and take on divestitures.
But if a deal is consummated in 2014, as management expects, it could help Sysco recover from chronic declines to the company's profit margins. That may help to turn around a company that has underperformed broader markets in recent years.KKR and CDR are also betting on Sysco's turnaround, taking the majority of their U.S. Foods sale in the form of Sysco stock, a rare move for private equity sellers who usually deal in cash. Sysco shares are up 15% year-to-date, underperforming the S&P 500. Most of the company's 2013 gains are attributable to investors' reaction to the company's December announcement of the deal for U.S. Foods. -- Written by Antoine Gara in New York Follow @antoinegara
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