Sysco Corp will buy US Foods Inc for about $3.5 billion from its private equity owners in a deal that will combine the top two U.S. food distributors and create a company commanding at least a quarter of the $235 billion North American market.
Sysco, whose shares jumped as much as 25 percent to a record high on Monday, touted the combination of its supply chain expertise with the strong consumer-facing technologies of US Foods as a key driver for the deal, which creates a company with revenue of $65 billion.
"The purchase price seems fairly reasonable. It is less than 10 times trailing 12-month EBITDA, and there are synergies that are expected to result from the deal," said Morningstar analyst Erin Lash.
United Natural Foods Inc, the next largest publicly listed food distributor, trades at about 14 times trailing EBITDA.
Sysco, which will assume US Foods' debt of $4.7 billion, said it expected about $600 million in annual cost savings within three to four years.
Both companies distribute foods to restaurants, hotels, hospitals, schools and other institutions.
Shareholders of US Foods, owned by affiliates of private equity firms Clayton, Dubilier & Rice and KKR & Co, will own about 13 percent of Sysco after the close of the deal, which is expected in the third quarter of 2014.
