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As US Foods finalizes Smart Foodservice Warehouse acquisition, purchase bolstered by new $500M KKR investment

Infusion helps US Foods move ahead with $970 purchase of cash-and-carry distributor

Investment firm KKR returned to its relationship with US Foods. CD&R and KKR are the private equity firms that purchased US Foods from Royal Ahold, N.V. in 2007 for approximately $7.1B, and later took it public. Now in 2020, KKR will invest $500M in US Foods and receive newly-issued convertible preferred stock in the company.

The liquidity the investment provides is sure to help US Foods at a time when it’s finalizing an investment of its own. Its bid to acquire Smart Foodservice Warehouse Stores is slated to finalize April 24, at which time it will outlay $970M in cash to complete the transaction.

As previously announced, the acquisition of Smart Foodservice provides US Foods with 70 small-format cash and carry stores across California, Washington, Oregon, Idaho, Nevada, Utah, and Montana. This purchase provides certain strategic opportunities for US Foods that it won’t pass on, based on this new deal with KKR. Meanwhile, KKR has sourced the $500M investment primarily through its KKR Americas XII Fund.

[Related article: US Foods to acquire Smart Foodservice Warehouse]

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The 7-percent dividend preferred investment will be paid in-kind during the first year, according to a statement from US Foods and KKR. After the first year, these shares can be paid in cash or in-kind. The shares are convertible at $21.50 per common stock. “On an as-converted basis, the preferred stock will represent approximately 9.6 percent of pro forma common shares outstanding,” revealed US Foods.

“KKR will be a valuable partner for us as we continue to focus on our associates, customers, communities and shareholders as the impacts of COVID-19 unfold,” said US Foods Chairman and CEO Pietro Satriano. “This transaction positions us to continue to build on our strengths as the environment improves over time.”

Nate Taylor, partner and co-head of Americas Private Equity at KKR, will join the Board of Directors of US Foods. Taylor said, “Given our history as a long term investor in the company, we are very familiar with the sector and US Foods’ leading position and believe the company has the capabilities and resources to navigate the current environment and create value over the long term.”

US Foods’ announcement follows a disclosure from Performance Food Group (PFG) that it would also raise some cash. PFG, the second-largest broadline U.S. foodservice distributor by revenue, upsized its offering of senior notes, which were initially priced at $250M. The new $275 raise creates a 6.875-percent offering due in 2025.

Photo credit: US Foods

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