HOUSTON — Sysco Corp. has pulled the plug on its merger agreement with US Foods. The move comes just days after the U.S. District Court in Washington, D.C. granted the Federal Trade Commission's request for a preliminary injunction to block the proposed merger.
Sysco's action also terminates an agreement with Performance Food Group (PFG) to purchase US Foods facilities in 11 markets. Under terms of the merger agreement, the termination of the deal requires Sysco to pay break-up fees of $300 million to US Foods and $12.5 million to PFG.
"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," said Bill DeLaney, Sysco's president and CEO. "We believed the merger was the right strategic decision for us, and we are disappointed that it did not come to fruition. However, we are prepared to move forward with initiatives that will contribute to the success of Sysco and our stakeholders."
DeLaney stressed Sysco's confidence in its existing business with a collective focus on the highest levels of customer service and satisfaction, growing the business, reducing costs and generating substantial value for Sysco's shareholders.
"Everything starts with the customer," DeLaney said. "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."
The Houston-based company will continue to leverage core business growth, he added.
"We also will continue to drive earnings through commercial and supply chain initiatives, including category management and revenue management in our core business, as well as pursuing cost-saving opportunities," he said. "We are confident in our ability to achieve these initiatives because of our success to date in transforming nearly all aspects of our business, standing up several commercial and functional capabilities, and taking out or avoiding more than $750 million in annual product and operating costs."
According to DeLaney, Sysco continues to generate strong and 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," he explained. "We will continue to make prudent investments in our business. We also remain committed to growing our dividend because we know that's important to our shareholders. And we will continue to look for strategic acquisitions that will enhance shareholder value over time."
Sysco's board of directors authorized the company to spend an additional $3 billion to buy back shares (approximately 13 percent of current outstanding shares at recent prices) over the next two years. The share repurchases will be in addition to the amount normally purchased to offset benefit plans and stock option dilution.
The company intends to fund these purchases from new borrowings and cash flow from operations. The intent is to repurchase approximately $1.5 billion in shares in each of the next two years and, as part of the first year's purchases, the company expects to put in place an accelerated share repurchase program. Sysco will continue to assess the merits of repurchasing shares over time, according to the company.
Sysco also will begin the process of redeeming the $5 billion of merger-related debt under the mandatory redemption provisions contained within those notes. This process is expected to take no more than 40 days.
Sysco operates 193 distribution facilities and sells, markets and distributes food products to restaurants, retailers, health care and educational facilities.
Rosemont, Ill.-based US Foods has more than 60 locations nationwide and offers more than 350,000 products to independent and multi-unit restaurants, health care and hospitality entities, government and educational institutions.