Food giant in Columbia to buy rival

U.S. Foodservice to pay $2.2 billion for Alliant Exchange

No word yet on layoffs

Annual sales of new company put at $19 billion

September 05, 2001|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

U.S. Foodservice said yesterday that it will buy Alliant Exchange Inc. for $2.2 billion in a deal that will expand the Columbia-based company's reach into 21 new markets.

The acquisition of privately held Alliant, the No. 3 food-service company in the country, will create a company with more than $19 billion in sales.

U.S. Foodservice, the country's No. 2 food-service company, was acquired by Giant Food Inc. parent Royal Ahold NV in April 2000. U.S. Foodservice will pay $1.45 billion in cash and assume $750 million in debt for Deerfield, Ill.-based Alliant. U.S. Food- service said it hasn't determined if there will be layoffs or facility closures.

However, U.S. Foodservice officials did say yesterday that the merger, which is scheduled to close in the first quarter of next year, will allow the company to cut costs in areas such as transportation.

"Right now we have to go everywhere in the country to service our chain customers, even in the cities we don't have a presence," said Robert Gillison, U.S. Foodservice vice president and treasurer. "That can be an expensive process."

Gillison also said that Alliant brings with it an expertise in distributing to the health care industry, a part of U.S. Foodservice's business that it hopes to strengthen with the acquisition.

"When you buy a company there are some things that you do better than them, and you hope to bring those skills to them," Gillison said. "You also want to learn from the other company."

Those who follow the industry said they weren't surprised by the merger, as consolidation has become more common in recent years. U.S. Foodservice has played a prominent role.

"U.S. Foodservice has been in the acquisition business for a while," said Robert Gaddy, vice president of marketing and communications for Food Distributors International. "The issue of consolidation is one we expect to continue because of the drive for efficiency. There are a lot of costs in this industry that can be reduced through consolidation."

In 1997, Columbia-based JP Foodservice Inc. merged with Pennsylvania-based Rykoff-Sexton Inc., renaming the distribution part of the company U.S. Foodservice.

Last year's acquisition of U.S. Foodservice by Dutch supermarket giant Royal Ahold gave the food distributor access to more capital for continued growth, analysts said.

It was expected that either U.S. Foodservice or industry leader Sysco Corp. would eventually buy Alliant, said equity analyst Joseph Milano of T. Rowe Price Associates Inc., the Baltimore brokerage company.

Alliant was the last big one that was standing," Milano said. "It was just a matter of time before one of the two big companies looked at them."

Milano said that Alliant has been "an underachiever for years" and that the experience U.S. Foodservice officials, led by Jim Miller, its president and chief executive officer, have with acquisitions should help improve operations.

"You have a guy who has done this before, you've got deep pockets behind him in Ahold, and you've got Alliant, which has underachieved forever," Milano said. "Those three things coming together create a pretty good deal."

Separate purchase

Alliant, with $6.6 billion in revenue last year, operates food processing facilities that serve 100,000 customers such as hotels and restaurants.

U.S. Foodservice has grown from $600 million in revenue in 1989 to $12 billion today. The company markets and distributes to more than 200,000 customers.

In a separate deal announced yesterday, Ahold said it would spend $500 million to buy Bruno's Supermarkets Inc., which operates 184 stores in the Southeast and reported revenue of $1.6 billion last year.

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