Manhattan’s Peltz Gobbles 7% of Sysco In $1.6 Billion Deal

The activist investor Nelson Peltz has emerged as the biggest shareholder in the food service company Sysco after buying a $1.6 billion stake in it.

Peltz’s $10 billion hedge fund, Trian Fund Management, took a 7.1 percent stake in the company, which supplies food to school canteens, hotels and restaurants, according to a filing made last month with the Securities and Exchange Commission.

The move comes on the heels of a failed merger attempt with US Foods.

In June US District Court judge granted the Federal Trade Commission’s (FTC) request for a preliminary injunction to block the proposed merger. The deal would have united two of the biggest food distributors in the country, solidifying Sysco’s position as the reigning giant in an already consolidated industry.

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Sysco, whose trucks move millions of pounds of frozen food and kitchen supplies around the country, had projected the deal to increase its annual revenue by 46 percent, to $65 billion.

Trian has held discussions with senior executives at Sysco about the company’s operations, capital structure, its corporate governance and the structure of the board, the hedge fund said in its filing. In discussions with the company, Trian said Sysco had a competitive advantage but that its financial performance had “underperformed relative to its potential.”

The hedge fund said Sysco should “adopt strategic and operating initiatives to improve operating margins, enhance working capital efficiency, consider the use of prudent amounts of incremental leverage to increase the amount of capital returned to shareholders, and take steps to better
align management compensation with corporate performance,” according to the filing.

Peltz acquires stakes in publicly listed companies that he thinks are undervalued, building up large enough positions to agitate for change. The firm has rattled the boards of other food companies like PepsiCo and Mondelez International.

Charlie Wilson, a spokesman for Sysco, says the company “welcomes collaborative discussions with investors,” adding that it “recently engaged with Trian and expects to continue a
constructive dialogue.”

“We believe Sysco is extremely well positioned to execute our strategy in a manner that will support the success of our customers’ profitably, grow our business and improve our return on invested capital,” Wilson said.

This year, Sysco halted a planned $3.5 billion takeover of US Foods after a ruling by a United States federal judge halted the merger on grounds that it would lead to higher prices and worse service for its customers. Instead, it announced plans to buy back $3 billion worth of shares.

The deal represents a return to his roots for Peltz who began his career as a sales person for his family’s food service distribution firm.