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Sysco, US Foods Merge

December 9, 2013
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Sysco Corp. and US Foods, Rosemont, Ill., announced an agreement to merge, creating a world-class foodservice company. The total enterprise value of the transaction is approximately $8.2 billion.

Bill DeLaney, Sysco president and CEO, will lead the combined company, which will continue to be named Sysco and headquartered in Houston, Texas. At closing, Sysco will have estimated annual sales of approximately $65 billion.

Sysco will pay approximately $3.5 billion for the equity of US Foods, comprising $3 billion of Sysco common stock and $500 million of cash. As part of the transaction, Sysco will also assume or refinance US Foods’ net debt, which is currently approximately $4.7 billion, bringing the total enterprise value to $8.2 billion. Sysco has secured fully committed bridge financing and expects to issue permanent financing prior to closing.

After completion of the transaction, the equity holders of US Foods will own approximately 87 million shares, or roughly 13% of Sysco. A representative of each of US Foods’ majority shareholders, affiliates of Clayton, Dubilier & Rice LLC and Kohlberg Kravis Roberts & Co. L.P., will join Sysco’s board of directors upon closing.

“As we continue on our transformational journey at Sysco, this transaction will position us to significantly accelerate our progress in achieving the vision we have for our company—to be our customers’ most valued and trusted business partner,” says DeLaney. “Sysco and US Foods have highly complementary core strengths, including a broad product portfolio and passionate food people deeply committed to customer service, quality-assured products and safety. In particular, we look forward to welcoming US Foods’ talented employees and continuing to invest in the development of all of our people. Together, we will strive to enhance shareholder value by providing our customers with highly differentiated products and services.”

"Combining and maximizing the significant strengths of two outstanding companies is certain to be of tremendous advantage in supporting our customers as they tackle the challenges of today's demanding environment,” says John Lederer, president and CEO of US Foods.

This transaction will bring together Sysco and US Foods’ complementary strengths, including talented and dedicated associates, a broad product portfolio, supply chain excellence and a commitment to continuous improvement. Going forward, Sysco will continue to create value for customers through insights-driven product innovation and expanded services that go beyond food.

At closing, the combined companies are expected to have annualized sales of approximately $65 billion and generate operating cash flows of approximately $2 billion. Sysco will purchase the outstanding equity of US Foods and assume or refinance its net debt in a transaction with an enterprise value of $8.2 billion. This represents a 9.9x multiple of US Foods’ trailing 12-month (as of Sept. 28) adjusted EBITDA of $826 million. Additionally, the transaction is expected to generate significant strategic benefits and cost synergies, achieving annual synergies of at least $600 million after 3-4 years, primarily stemming from supply chain efficiencies, merchandising activities and overlapping general and administrative functions. The transaction is expected to be immediately accretive to earnings after adjusting for transaction-related costs and amortization of intangibles.

Sysco expects to maintain a strong investment grade rating. Additionally, Sysco is committed to continuing to invest in its dividend and returning value to shareholders. Sysco has paid a dividend every quarter since 1970 and has increased its dividend 45 times since becoming a public company. Sysco will establish a team comprising members of both companies to prepare for and oversee a comprehensive integration for employees, customers and suppliers.

The transaction, which is expected to close in the third quarter of calendar year 2014, is subject to customary closing conditions and regulatory approvals, including antitrust approval.

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