Columbia-based U.S. Foodservice said yesterday that it will purchase PYA/Monarch, the leading food-service distributor in the Southeast, for $1.57 billion in cash.
The acquisition will reunite two companies that were divided in 1989 after a leveraged buyout of a Sara Lee Corp. subsidiary, creating U.S. Foodservice. In April, U.S. Foodservice was bought by Dutch supermarket giant Royal Ahold NV for $3.6 billion.
Analysts said the deal will strengthen U.S. Foodservice's standing as the second-largest food distributor in the nation and boost food service sales for Royal Ahold, which are expected to exceed $12 billion next year.
"The food service industry is growing very quickly," said Mark Husson, an analyst with Merrill Lynch Global Securities in New York. "This is a big vote of confidence in U.S. Foodservice by Ahold. ... Customers of PYA/Monarch should somewhat see lower prices once they take over."
U.S. Foodservice distributes food and related products to restaurants and institutional food establishments across the country. The company employs more than 14,000, and its customers include restaurants such as Ruby Tuesday and Pizzeria Uno.
The company has been aggressive with its acquisitions in the last year, purchasing Chicago-based Stockyard Packing Co., GFG Foodservice in North Dakota and Parkway Food Service Co. in Greensburg, Pa., for an undisclosed amounts.
The acquisition of PYA/Monarch, therefore, is "fully in line with our international growth strategy and with Ahold's ambition to become the world's best multi-channel food provider," said Cees van der Hoeven, president and chief executive officer of Royal Ahold.
"Our company continues to grow profitably, organically and through acquisitions in three market channels," said van der Hoeven, referring to Royal Ahold's retail store operations, foodservice operations and e-commerce. "Today's transaction clearly strengthens the market position of U.S. Foodservice."
PYA/Monarch operates 15 distribution centers and employs 4,850, with sales approaching $3 billion. The company's customer base includes national restaurant chains such as Ryan's, Applebee's and Subway, as well as health care institutions, universities and hotels.
The transaction is expected to close this year and add almost immediately to Royal Ahold's earnings, said Huib Wurfbain, vice president of investor relations for Royal Ahold.
The transaction includes a supply agreement with Sara Lee, which makes baked goods, and Jimmy Dean meats.
Royal Ahold will pay for the acquisition using a bridge facility and will refinance that loan from available cash and sale of debt later this year.
Royal Ahold forecast cost savings of about $30 million in the first year after the acquisition and $60 million the following year.
"The integration will be smooth," Wurfbain said. "We're buying our little sister. The system is the same. The culture is the same. It fits like a glove."
Shares of Royal Ahold gained 37.5 cents yesterday on the New York Stock Exchange, to close at $29.0625.