Sysco to sell 11 US Foods distribution facilities

by Erica Shaffer
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HOUSTON – Foodservice giant Sysco Corp. has agreed to sell 11 US Foods facilities to Performance Food Group (PFG). The divestiture is related to Sysco's pending merger with US Foods, and the sale is contingent upon the completion of the merger, Sysco reported.

Sysco said Federal Trade Commission has not yet agreed to the divestiture as a solution to commission’s concerns. Sysco and US Foods plan to present its position, including the divesture plan, to the FTC and seek to obtain the commissioners' approval. The majority of the five commissioners must approve the transaction. Sysco and US Foods announced the merger in December 2013. The merger would create a distribution giant with roughly 25 percent of the market for selling food and other products to foodservice operations such as restaurants, schools and other businesses.

The 11 distribution facilities include locations in: Corona, Calif.; Denver; Kansas City, Kan.; Phoenix; Salt Lake City, San Diego; San Francisco, Seattle, Cleveland, Las Vegas and Minneapolis.

"Over the past 12 months, we have worked in good faith with the FTC to help them better understand the highly competitive US foodservice distribution industry and the significant customer benefits that will result from the merger of Sysco and US Foods," said Bill DeLaney, Sysco president and CEO. "Unfortunately, the FTC has taken a different view of the potential competitive impacts of the merger. While we respectfully but vigorously disagree with the FTC's analysis, we believe this divestiture package fully addresses its concerns."

Sysco said the distribution centers generated $4.6 billion in annual revenue. In addition to the sale, Sysco and PFG agreed on a comprehensive multi-year transition services agreement to ensure a smooth transfer of assets from US Foods to PFG. Sysco will provide various support services and personnel to help PFG.

"The collection of distribution centers and other assets that Performance Food Group will acquire along with related support services agreements will enable us to compete effectively for national broadline foodservice customers," said George Holm, PFG president and CEO. "We are excited by the opportunities for growth presented by this transaction and are confident that we will effectively execute our plans to become one of the country's premier broadline distributors serving customers coast to coast."

PFG delivers more than 150,000 proprietary branded and national food and food-related products to more than 150,000 independent and national restaurant chains and other foodservice operations. The company already operates 67 distribution centers and 11 Merchant's Mart locations.

After selling the facilities, Sysco estimates the company still will be able to achieve net annual synergies of at least $600 million in four years.

"Our analysis shows that our projected synergies will remain as substantial as we had previously outlined, even after reflecting the impact of divestitures," DeLaney said. "This is a testament to the strength of our ongoing integration planning work and reaffirms the major efficiencies we can achieve by bringing Sysco and US Foods together. These savings will position Sysco to deliver significant new value to our customers, including lower costs."

The divestiture announcement came along with Sysco's earnings statement for the second quarter ended Dec. 31. The company reported revenues of $12.1 billion, up 7.6 percent. Net earnings for the quarter dropped 25.1 percent to $158 million, or 27 cents per share.
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