NEW YORK (TheStreet) -- Sysco Corporation (SYY) settled from earlier highs of over $40 following news it had agreed to purchase U.S. Foods in a deal with total enterprise value of around $8.2 billion.
By mid-afternoon, the food retailer and distributor was trading up 9% to $37.41.
Sysco agreed to pay $3 billion in cash and $500 million in stock and by close, equity holders of U.S. Foods will own 87 million shares, or 13% of the company. U.S. Foods' majority shareholders include affiliates of Clayton, Dublier & Rice and Kohlberg Kravis Roberts (KKR), a representative of each to join the Sysco Board of Directors after the deal's close.
The acquisition, expected to be finalized in the third-quarter of next year, will create a company with estimated combined annual sales of $65 billion and realize annual synergies of $600 million as early as 2017.
On a conference call Monday morning, Chief Executive said Sysco's current 18% share of the food distribution market will benefit from the addition of U.S. Foods' 9% share.
Despite the creation of an industry powerhouse, Moody's Investors Service has placed all ratings of Sysco on review for downgrade due to its assumption of $4.7 billion of U.S. Foods' debt.
"While Moody's believes the transaction makes strategic sense, and the pricing at around 10 times EBITDA seems reasonable given synergy potential, the immediate impact on Sysco's credit metrics from the debt component will result in a level of deterioration that will likely lead to a downgrade," explained Moody's Vice President Charlie O'Shea in a press release.