In the category of news that is hardly new, Ahold has announced that it has reached an agreement to sell U.S. Foodservice to a private equity consortium. This sale has been expected since an accounting scandal surfaced at U.S. Foodservice in 2003. The investment bankers gave details of the sale as follows:
CLAYTON, DUBILIER & RICE AND
KOHLBERG KRAVIS ROBERTS
TO ACQUIRE U.S. FOODSERVICE FROM AHOLD
Transaction Valued at $7.1 Billion
for U.S. Market Leading Foodservice Distributor
NEW YORK, May 2, 2007 — Clayton, Dubilier & Rice, Inc. (CD&R) and Kohlberg Kravis Roberts & Co. L.P. (KKR) announced today a definitive agreement to acquire U.S. Foodservice, the second largest broadline foodservice distributor in the U.S., from Royal Ahold N.V. (NYSE: AHO). Funds affiliated with CD&R and KKR are equal partners in the transaction, valued at $7.1 billion.
With revenues in 2006 of more than $19 billion, U.S. Foodservice’s operations cover a geographic area in which over 95 percent of the U.S. population resides. The company provides food and related products to independent restaurants, healthcare and hospitality customrs, educational institutions and prominent multi-unit restaurant companies.
Michael M. Calbert, a Member of KKR, stated, “KKR has a long history of acquiring industry-leading franchises. U.S. Foodservice has built one of the leading businesses in the foodservice distribution industry, with a wide range of growth and operational improvement opportunities. We and our partners at CD&R look forward to working with the company’s management team, which has done an excellent job of refocusing the business in recent years, to continue executing the strategic initiatives in place.”
“U.S. Foodservice is well positioned in a stable and growing industry that we know well from prior investments,” said Richard J. Schnall, the partner leading the transaction from CD&R. “We plan to leverage the company’s strong national and local market positions in the nearly $200 billion U.S. foodservice industry to accelerate growth in both revenues and profitability. We are very pleased to be partnering with KKR and the company’s outstanding management team to build an even more valuable enterprise.”
“We are pleased to be partnering with two outstanding firms — two of the oldest private equity firms in the business — which have a great understanding of our industry, from both a financial and operating standpoint,” said Robert Aiken, President of U.S. Foodservice. “We have great confidence the strategic and financial support of these two firms will enable us to grow and better serve our customers.”
Completion of the transaction, which is expected to occur in the second half of the year, is subject to regulatory approvals, approval of Ahold’s shareholders and customary closing conditions.
Financing for the transaction is being provided by Citigroup, Deutsche Bank, Goldman, Sachs & Co., J.P. Morgan Securities Inc., Morgan Stanley & Co. and Royal Bank of Scotland.
Citigroup, Deutsche Bank, Morgan Stanley & Co. and Rabobank are acting as financial advisors to CD&R and KKR. Simpson Thacher & Bartlett LLP is acting as legal advisor to the buyers and Debevoise & Plimpton LLP is acting as legal counsel in connection with the financing.
About Clayton, Dubilier & Rice
Clayton, Dubilier & Rice, Inc. (CD&R) is a leading private equity investment firm that has earned consistent, superior investment returns using an integrated operational and financial approach to building and growing portfolio businesses. CD&R’s portfolio investments have included Alliant Foodservcie, sold to Ahold in 2001, and Brakes Foodservice, the U.K.’s market leader with operations in France, as well as Hertz, Culligan International, and VWR International. CD&R recently announced an agreement to acquire ServiceMaster in a transaction valued at $5.5 billion. The firm is based in New York and London.
Kohlberg Kravis Roberts & Co. (KKR) is one of the world’s oldest and most experienced private equity firms specializing in management buyouts. Founded in 1976, it has offices in New York, Menlo Park, London, Paris, Hong Kong and Tokyo. Throughout its history, KKR has brought a long-term investment approach to its portfolio companies.
The question now is whether U.S. Foodservice will pose more of a competitive challenge to Sysco. It seems very likely. U.S. Foodservice has been neglected as a foodservice island in a retail company, and what funds that were available for investment weren’t going to be focused on foodservice.
Although Sysco recently missed its profit estimates, it has been conducting business reviews of thousands of accounts to find ways to boost business and has been adding both salespeople and distribution hubs. It is almost like Sysco was getting ready for a new approach from US Foodservice — why not, they’ve only had four years to prepare!