Food Distribution Merger Valued at $100 billion Floated

- Performance Food Group Co. has attracted takeover interest from US Foods Holding Corp., a potential deal that would create a food distribution company with combined sales of roughly $100 billion, people familiar with the matter said.

Rosemont, Illinois-based US Foods has been evaluating an acquisition of Performance Food and expressed interest about a potential combination in recent months, according to the people, who asked not to be identified because the information is private.

Shares of Performance Food rose as much as 5.1% on Friday, the biggest intraday gain in three months, to hit an all-time high. They were up 4% at 9:57 a.m. in New York, giving the company a market capitalization of about $14.7 billion. US Foods shares rose 1.2%, valuing the company at $18.8 billion.

There’s no certainty the deliberations will lead to a transaction, the people said. Representatives for US Foods and Performance Food declined to comment.

The combined company would become the No. 1 US foodservice distributor, with 18% of the $371 billion market, according to Bloomberg Intelligence. That would surpass current market leader Sysco Corp., which has a 17% share, senior industry analyst Michael Halen wrote in a research note.

Performance Food has a strong footprint in independent pizzerias, convenience stores and candy and snacks — all areas where US Foods is underexposed, he said. A deal would create “meaningful scale and synergies,” though it would hurt US Foods’ Ebitda margins, according to Halen.

US Foods supplies restaurants, hospitals, schools and hotels, generating revenue of $37.9 billion last year. The company employs about 30,000 people in more than 70 locations, according to its website.

Performance Food offers similar services in the US and Canada across three units: restaurant supplier Performance Foodservice, candy and snack distributor Vistar and its Core-Mark business serving convenience stores.

US Foods could structure a deal to minimize pressure on debt ratios by using more equity to complete an acquisition, and any increase in leverage would be temporary, Bloomberg Intelligence senior credit analyst Julie Hung wrote in a separate note. However, the deal could face regulatory scrutiny, she said.

In 2015, Sysco Corp.’s planned $3.5 billion takeover of US Foods Inc. was blocked by a federal judge who said a merger of the food distribution giants would probably have reduced competition. US Foods went public the following year under its current name.

Bloomberg's Crystal Tse reports.

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