JP Foodservice Inc. said Monday it will buy Rykoff-Sexton Inc. for about $1.4 billion in stock and debt, creating the second-largest food wholesaler in the U.S.
JP Foodservice, which is acquiring a company twice its size in sales, said it will have annual revenue of about $5.2 billion after the purchase, with more than 130,000 restaurants, hotels and institutional buyers as customers. Market leader Sysco Corp. had 1996 sales of $13.4 billion.
The purchase will extend JP Foodservice’s reach into the West and into manufacturing. It also gives the company an advantage in taking on Houston-based Sysco, which has dominated the fragmented $135 billion food distribution industry during the last decade.
Under the terms of the agreement, Rykoff shareholders will exchange each of their 28.6 million shares for 0.84 share of JP. At Friday’s closing price, the stock swap is valued at $25.31 a share to Rykoff-Sexton’s shareholders, or about $724 million.
JP Foodservice shares Monday fell $1.43, to $28.68; Rykoff-Sexton shares jumped $3.68, to $23.31.
JP also will assume about $700 million in Rykoff debt. The purchase is expected to be completed by the end of the year.
Columbia-based JP will more than double its shares outstanding in acquiring all of Rykoff’s shares. But the company said the transaction will increase earnings per share in the fiscal year beginning this week.
The purchase of Wilkes-Barre, Pa.-based Rykoff, formerly of Lisle, Ill., enables JP to accelerate the growth it has pursued since gaining independence from Chicago-based Sara Lee Corp. in a leveraged buyout in 1989. The company went public in 1994 and Sara Lee sold its remaining stake last year.
