Why Sysco Shares Surged
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Sysco climbed 11% yesterday after the food distributor agreed to acquire rival US Foods for about $3.5 billion.
So what: Sysco is making the cash-and-stock deal -- $3 billion in common stock and $500 million in cash -- to complement its core strengths while expanding globally. Judging by the big share-price spike today, management is paying a great price to do it. Sysco's move also represents the industry's largest North American deal in about eight years, suggesting that consolidation in the space might be heating up.
Now what: The move is expected to generate annual synergies of at least $600 million within three to four years. "Sysco and US Foods have highly complementary core strengths including a broad product portfolio and passionate food people deeply committed to customer service, quality-assured products and safety," said Sysco CEO Bill DeLaney. "Together we will strive to enhance shareholder value by providing our customers with highly differentiated products and services." More important, with the stock still off about 10% from its 52-weeks and sporting a 3%-plus dividend yield, there might be some room left to buy into Sysco's newly bolstered scale.
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The article Why Sysco Shares Surged originally appeared on Fool.com.Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Sysco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.