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Sysco, US Foods Weigh What To Do with 43 Million SF of Distribution Space

And More Downsizing News from AT&T, Emulex, MedStar Health, Nash Finch, Outerwall, Saks and many others
December 16, 2013
With two portfolios of real estate combined totaling some 43 million square feet of distribution space, Sysco Corp. and US Foods will have their work cut out for them over the next three to four years creating supply-side efficiencies.

The two foodservice companies agreed to merge last week in transaction with a total enterprise value of $8.2 billion and the deal has been approved by the boards of each company. Sysco, based in Houston, will be the surviving company as it folds in Chicago-based US Foods operations.


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Sysco said the transaction is expected to generate significant strategic benefits and cost synergies, with estimated annual synergies of at least $600 million after three to four years. These synergies will be derived primarily from supply chain efficiencies, merchandising activities and overlapping general and administrative functions.

Those efficiencies will include streamlined operations, the company said, including possible divestitures of facilities.

US Foods owns approximately 14.4 million square feet of distribution space and leases another 3.78 million. It operates more than 80 facilities across the country.

Sysco owns more than 21 million square feet of space and leases another 4.5 million; it operates more than 190 locations.

“We expect… that there will be a review process and it will take several months and we’ll have some good discussions along those lines. So, there could be very well be some divestitures,” Bill DeLaney, Sysco president and CEO, told investment analysts. “We’ve modeled what we can today, and even with some divestitures, we still see this as a very attractive deal."

Sysco said it will establish a team comprising members of both companies to prepare for and oversee a comprehensive integration for employees, customers and suppliers.

Sysco will pay approximately $3.5 billion for the equity of US Foods, comprising $3 billion of Sysco common stock and $500 million of cash. As part of the transaction, Sysco will also assume or refinance US Foods’ net debt, which is currently approximately $4.7 billion, bringing the total enterprise value to $8.2 billion. Sysco has secured fully committed bridge financing and expects to issue permanent financing prior to closing.

The transaction, which is expected to close in the third quarter of 2014, is subject to customary closing conditions and regulatory approvals, including antitrust approval.

“If Sysco successfully deleverages after the acquisition, the combination of companies has credit positive elements,” Said Charles O’Shea, a vice president senior analyst at Moody’s Investors Service. Among other factors, Sysco will achieve greater scale by combining its $45 billion in revenue with US Foods’ $22 billion, creating a company that will have more pricing power with vendors.

Greater scale will provide the combined company greater competitive clout as both face competition from distribution competitors such as Performance Food Group, C&S Wholesale Grocers and Restaurant Depot, as well as from Costco, Wal-Mart Stores, Sam’s Club and BJS Wholesale Club, which cater to the smaller end of the segment, O’Shea said.

Analysts also said the merger would address each companies' respective strengths and weaknesses. For example, US Foods has a superior “street” business and Sysco has a superior institutional business. And Sysco was already well along with its plan to reduce costs through automation and centralization, disciplines that will help the combined company, according to O’Shea.

Additional Closures & Downsizings


Emulex Corp. implemented a restructuring plan designed to streamline business operations and achieve operating expense reductions. The restructuring will include a workforce reduction of 110 (approximately 10% of staff), the consolidation of certain engineering activities, and closure of its Bolton, MA facility.

Outerwall Inc. is implementing actions to reduce costs by $22 million annually beginning in 2014, primarily through workforce reductions across the enterprise. Between the closure of certain new ventures and additional reductions across the enterprise, the company has reduced its workforce by 251 positions, an 8.5% reduction.


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CompanyAddressCityStateClosure or LayoffNo. of LayoffsImpact Date

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AT&T335 Putnam Ave.HamdenCTClosure682/7/2014

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Craft Worldwide Holdings/Craftsteak Foxwoods240 MGM Grand DriveMashantucketCTClosure542/2/2014

.

AT&T310 Orange St.New HavenCTClosure42/7/2014

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AT&T430 Broad St.New LondonCTClosure452/7/2014

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Global Tower Partners750 Park of Commerce Blvd., Suite 300Boca RatonFLUnknown622/3/2014

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Arabian Nights3081 Arabian Nights Blvd.KissimmeeFLUnknown22412/31/2013

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G4S Youth Services (Riverside Academy)4004 N. Riverside DriveTampaFLUnknown1302/1/2014

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Security Networks3223 Commerce Place, Suite 101West Palm BeachFLUnknown1782/7/2014

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White Sprgs. Agricultural Chemicals Inc15843 Southeast 78th St.White SpringsFLUnknown3502/2/2014

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Premium Pet Health101 Virginia St.Sioux CityIAClosure451/31/2014

.

Saks Inc.500 Hickory DriveAberdeenMDLayoff1911/3/2014

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MedStar Health9000 Franklin Square DriveBaltimoreMDLayoff431/31/2014

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MedStar Health5601 Loch Raven Blvd.BaltimoreMDLayoff191/31/2014

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MedStar Health3001 S. Hanover St.BaltimoreMDLayoff291/31/2014

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MedStar Health201 E. University ParkwayBaltimoreMDLayoff261/31/2014

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Nielsen Audio Inc.9705, 9700, 9740 & 9830 Patuxent Woods DriveColumbiaMDLayoff3331/14/2014

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MedStar Health18101 Prince Phillip DriveOlneyMDLayoff241/31/2014

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Allied Systems Holdings6301 Wyoming Ave.DearbornMILayoff6812/23/2013

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American Red Cross Detroit National Testing Lab100 Eliot St.DetroitMIClosure1182/3/2014

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ReCellular Inc.t 2555 Bishop Circle WestDexterMILayoff, possible closure94Immediately

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Inalfa Roof Systems Inc.10350 N01th Holly RoadGrand BlancMIClosure521/8/2014

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Scherer & Trier USA1294 Beach CourtSalineMILayoffUnknownImmediately

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Spartan Stores-VGs50820 SchoenhenShelby TownshipMIClosureUnknown1/5/2013

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Nash Finch6300 Creek RoadBlue AshOHClosure602/10/2014

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Jeld-Wen Inc.680 Scattergood Dr NWChristianburgVAClosure1091/31/2013

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Georgia-Pacific1165 Allen RoadJarrattVALayoff6512/8/2013

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JC's 5 Outlet240 Commonwealth Blvd WMartinsvilleVAClosure3112/18/2013

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Boehringer Ingelheim 2820 North Normady DrivePetersburgVALayoff6312/31/2013

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Diversified Machine2039 S. Lenox St.MilwaukeeWIClosure2182/2/2014



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