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

By Neil J Kanatt

March 30 (Reuters) - Sysco SYY.N said on Monday it would buy catering supplier Jetro Restaurant Depot in a $29  billion deal, including debt, expanding the top U.S. food distributor's reach among price-conscious independent restaurants.

Shares of Sysco, which has a market capitalization of $39.2  billion, fell about 12% 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

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 the higher-margin "cash-and-carry" business, where Restaurant Depot has about 166 warehouse locations across 35 U.S. states.

"Sysco and Jetro Restaurant Depot will enhance value for small independent restaurants and the consumers they serve by expanding access to more affordable, fresh food products and delivering more choice and convenience," Sysco CEO Kevin Hourican said in a statement, highlighting how the combination would help lower prices for more customers.

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.

Last year, US Foods USFD.N ended merger talks with Performance Food PFGC.N, 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 U.S. 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.

"There is minimal overlap between Sysco and Restaurant Depot's customers," Hourican said in a call with analysts. Sysco expects to open more than 125 new Restaurant Depot locations in at least the next two decades by leveraging its wide supply chain footprint.

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.

Credit rating firm Fitch placed Sysco on "rating watch negative", while Moody's placed its ratings on review for downgrade following the deal announcement.

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.