Food Distributor Rykoff-Sexton Agrees to Buy US Foodservice

Rykoff-Sexton Inc. said Monday it reached a definitive agreement to buy closely held US Foodservice Inc. for $613.6 million in stock and assumed debt, slightly less than initially proposed.

Rykoff-Sexton, a Lisle-based food distributor, said it will pay $25 a share in stock, or $230 million, for each of US Foodservice’s 8.8 million shares outstanding and to convert US Foodservice options and warrants.

Rykoff-Sexton, which was formerly based in Los Angeles, would assume or refinance about $335 million of debt and pay about $48.6 million to redeem US Foodservice preferred stock.

The total is less than the $620.5 million called for under a preliminary agreement announced in December.

Privately held Wilkes-Barre, Pa.-based US Foodservice distributes food and related products to the food service industry, serving more than 35,000 customers primarily in the U.S. Southeast, Southwest and mid-Atlantic. It had revenue of about $1.7 billion in 1995.

Rykoff-Sexton shares rose 25 cents at $16 on the New York Stock Exchange.

Rykoff-Sexton projected that after a year of diluted earnings, it would save about $30 million annually through efficiencies at the combined company.

“We expect that the proposed merger will significantly enhance purchasing power, provide growth opportunities for the Rykoff-Sexton manufacturing operations, and enable us to further penetrate key markets with the distribution of the Rykoff-Sexton proprietary branded products,” said Mark Van Stekelenburg, chairman and chief executive.

Upon completion of the transaction, US Foodservice Chairman and Chief Executive Frank H. Bevevino will become president and a director of Rykoff-Sexton. He will stay chief executive of the new subsidiary, responsible for all food service distribution operations at the combined company.

The acquisition would double Rykoff-Sexton’s revenue to about $3.5 billion annually and further fuel consolidation in the food distribution industry.

The move comes as some of the United States’ largest food distribution companies are looking to get bigger. Chicago-based Sara Lee Corp. last fall offered to sell its food distribution business to Columbia, Maryland-based JP Foodservice Inc. in exchange for JP stock, a combination that would make JP the third-largest food distributor to restaurants and hotels.