Stocks

Sysco Terminates Merger Deal With US Foods; To Buyback $3B Shares

Sysco decided to terminate its merger deal with US Foods after a federal court blocked it. The company also canceled its agreement with Performance Food Group (PFG) to acquire the facilities of US Foods in 11 markets.

Sysco Logo

Last week, U.S. Federal Judge Amit Mehta of the District Court in Washington for the District of Columbia, granted the request for preliminary injunction to the block the proposed merger between Sysco and US Foods. The Federal Trade Commission (FTC) made the request for preliminary injunction.

The termination of the deal requires Sysco to pay $300 million break-up fees to US Foods and $12.5 million to PFG under the terms of the merger agreement.

Sysco is ready to move forward

In a statement, Bill DeLaney, president and CEO of Sysco explained, “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.”

DeLaney reiterated that the merger was the “right decision” for the company, and they are “disappointed that it did not come to fruition.” He also emphasized that they are ready to move forward with initiatives that would contribute to the success of Sysco and its stakeholders.

According to Delaney, Sysco is confident with its existing business. The company is focused on the highest levels of customer service and satisfaction. It is also focused on growing the business, reducing costs and generating substantial value for shareholders.

“Everything starts with the customer. Our vision remains clear: to be our customers’ most valued and trusted business partner. If our customers succeed, then we succeed. Our relentless focus on providing exceptional customer service and differentiated solutions to help our customers grow is unwavering,” said Delaney.

Sysco stock buyback

The board of directors of Sysco approved the repurchase of additional $3 billion worth of its shares over the next two years. The company plans to fund the stock buyback using its cash flow from operations and new borrowings.
Delaney emphasized that Sysco remained committed to maintaining a solid investment-grade credit rating and strong balance sheet. The management of the company is also very comfortable leveraging its balance sheet to enhance returns to shareholders.

“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,” said DeLaney.

Sysco will start the process of redeeming the $5 billion of merger related debt under the mandatory redemption provisions stipulated within those notes. The process would take more than 40 days.

Get our newsletter and our in-depth investor case studies all for free!