US food giant Sysco strikes $29 billion deal for catering supplier Restaurant Depot

Sysco said on Monday it would buy catering supplier Jetro Restaurant Depot in a $29  billion deal expanding the top US. food ‌distributor’s reach among price-conscious independent restaurants.

Shares of Sysco, which has a market capitalization of $39.2  billion, fell as much as 14.8% after the company said it would finance the acquisition with $21  billion in new and hybrid debt, along with $1  billion in cash and equity.

The acquisition would be the latest major deal across consumer-facing industries, following recent merger talks involving companies such as Unilever, Estee Lauder ​and Pernod Ricard, as firms look for scale to navigate weaker demand and persistently higher costs.

CASH-AND-CARRY HEFT

“This deal reflects Sysco recognizing that its traditional distribution ​model is under real structural pressure and choosing to act before that pressure becomes existential,” said Brad Haller, a ⁠senior partner in West Monroe Partners’ mergers & acquisitions practice.

Family-owned Jetro Restaurant Depot operates a wholesale cash-and-carry model, where customers pay upfront for goods such as ​food, beverages and takeaway containers, complementing Sysco’s delivery network serving restaurants, hospitals and hotels.

The deal would help Sysco enter this higher-margin business, where Restaurant Depot has ​about 166 warehouse locations across 35 U.S. states.

“Cash-and-carry and specifically Restaurant Depot is an extremely recession resilient business. Every time there’s an economic downturn, cash-and-carry and specifically Restaurant Depot takes share,” Sysco CEO Kevin Hourican told Reuters in an interview, elaborating that the low prices make the company a customer favorite.

The companies said Restaurant Depot shareholders will receive $21.6  billion ​in cash and 91.5  million Sysco shares, which equate to about $7.5 billion as of Friday’s close, giving them a roughly 16% stake in the combined company.

ANTITRUST ​HURDLE?

Last year, US Foods ended merger talks with Performance Food, which would have tied together the nation’s No. 2 and No. 3 food-service distributors in an effort to challenge industry leader Sysco ‌and reduce ⁠costs.

In June 2015, a US. federal judge granted the Federal Trade Commission’s request to block Sysco’s $3.5 billion acquisition of US Foods after the regulator argued that the deal would create a behemoth that could raise prices on goods delivered to national customers.

For the Restaurant Depot deal, Hourican said he expects a favorable decision from US. antitrust regulators, as Sysco and Restaurant Depot operate in distinct channels with limited customer overlap.

“The facts of the case are it is a ​different channel, the primary customer is different, ​and there are synergies on ⁠how we can bring value to the end consumer,” Hourican told Reuters.

The two companies have been engaged in conversations for years, Hourican said, and the question of succession was part of the reason why the Kirsh family behind Restaurant ​Depot decided to sell now. The founder, Nathan, is in his 90s and his children don’t run the ​business. They decided that ⁠Sysco is the best home for their family’s business to help take it to the next generation and beyond, Hourican said.

Sysco expects the acquisition to boost earnings per share by a mid- to high-single-digit percentage in the first year after closing, which it expects by the third quarter of fiscal 2027.

The company said it ⁠was pausing its ​share repurchase program and reaffirmed its annual forecasts. Sysco, known for supplying steaks, fillets and ​frozen foods to fast-food chains such as KFC and Subway, raised its full-year profit forecast earlier this year as demand held up despite macroeconomic pressures.