Blocked merger nets local food dealer $25M

PFG has been privately held for six years.

PFG received a hefty windfall from its competitors. 

The blocked merger of the country’s top two food distributors has produced an eight-figure windfall for a local competitor.

Goochland-based Performance Food Group, the third-largest food distribution company in the country behind Sysco Corp. and US Foods, was awarded a $25 million termination fee as a result of the failed merger of the two bigger companies, according to a recent SEC filing.

PFG had planned to purchase 11 US Foods distribution centers from Sysco once the merger was completed – a deal aimed at appeasing federal regulators’ concerns that the merger would violate antitrust laws.

In June, a U.S. District Court granted a request from the Federal Trade Commission for a preliminary injunction to block the proposed merger. That prompted Sysco to terminate its agreement with US Foods, which in turn brought an end to the PFG agreement.

As a result, PFG received the termination fee, the cost of which was split between Sysco and US Foods. Sysco was also required to pay US Foods a termination fee totaling $300 million. Termination fees are typical provisions in contracts involving large transactions.

Ultimately, the failed deal cost Sysco a total of $693 million in fiscal year 2014, according to reports.

PFG reported receipt of the fee in its latest SEC filing – a reiteration of its previously stated intention to go public. The company had been a publicly traded Fortune 500 before its majority owners, investment firms The Blackstone Group and Wellspring Capital Management, took PFG private in 2008.

A spokesman for PFG said the company would not comment on the termination fee beyond the SEC filing.

The companies had not disclosed how much PFG would have paid for the 11 distribution centers, but the facilities generated a combined $4.6 billion in annual revenue last year.

PFG, which serves such restaurant chains as Bonefish Grill, Cracker Barrel, O’Charley’s and Outback Steakhouse, generated $13.7 billion in net sales in fiscal year 2014, according to the filing. It ended that year with $15.5 million in net income.

Headquartered in West Creek, the company markets and distributes approximately 150,000 food and food-related products from 68 distribution centers to over 150,000 customers. In addition to restaurant chains, customers include schools, business and industry locations, hospitals, vending distributors, office coffee service distributors, big box retailers and theaters.

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