Sysco Decides Not to Pursue Merger With US Foods

Sysco Decides Not to Pursue Merger With US Foods

HOUSTON, TX - Sysco has decided, instead of appealing the federal decision to place an injunction, to terminate its two-year-long pursuit of merging with competitor US Foods. As a result, the company will also not be purchasing the US Foods facilities in eleven markets as previously arranged with Performance Food Group (FPG).

Bill DeLaney, President and CEO of Sysco"After reviewing our options, including whether to appeal the Court's decision, we have concluded that it's in the best interests of all our stakeholders to move on," Bill DeLaney, President and CEO of Sysco, said, according to a press release. "We believed the merger was the right strategic decision for us, and we are disappointed that it did not come to fruition."

As a result of the decision, Sysco will have to pay break-up fees to both US Foods and PFG, totalling in about $312 million, as well as going back to the drawing board to reassess its options.

As we previously reported, DeLaney stated in his initial response to U.S. District Judge Amit Mehta’s ruling that the company had understood that this was a possible outcome and had developed additional plans to move forward. Those plans, according to the statement just released, include both a plan to redeem any merger-related debt and a $3 billion share repurchase.

Sysco stock dropped 82 cents, from $38.42 per share at 9:30 a.m. EDT, to $37.47 per share at 1:05 p.m. EDT. The company said, however, that it will take on debt with the repurchase program to benefit shareholders.

"While we are very comfortable leveraging our balance sheet to enhance returns to our shareholders, we remain committed to maintaining a solid investment-grade credit rating and a strong balance sheet," DeLaney said. "A strong balance sheet provides the capacity and flexibility to continue to pursue strategic opportunities as they may arise. While we anticipate the possibility that our credit rating may be downgraded as a result of this new share repurchase program, we are comfortable operating our company with higher levels of debt."

As for redeeming the $5 billion of merger-related debt, the company stated it expects to do so in “no more than 40 days.”

DeLaney noted his confidence in the company’s customer service, as well as leveraging core business growth through its commercial and chain supply initiatives, stating that the company continues to generate a stable cash flow.

"We have improved our discipline and efficiency in how we manage our substantial cash flow, and we are committed to grow our free cash flow over time as we move forward," DeLaney said, concluding that Sysco will continue to make good investments in its business while remaining committed to growing dividend “because we know that's important to our shareholders.”

And the failed merger with US Foods? The CEO appears undeterred, saying the company will still search for strategic acquisitions that will enhance its shareholder value over time.

Companies in this Story

US Foods

US Foods is one of America’s leading foodservice distributors to restaurants, healthcare and hospitality facilities,…


Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and…