Food distributor Performance Food Group Co. has agreed to acquire privately held rival Reinhart Foodservice for $2 billion in a bid to build scale and tackle rising costs.
Reinhart will be acquired from its owner Reyes Holdings LLC in an all cash deal, Performance Chief Executive George Holm confirmed in an interview.
Reinhart generated more than $6 billion in revenue last year. Combined, the companies would have more than $30 billion in sales, according to Performance, which has a market value of $4.2 billion.
Food distributors — the companies that get products from manufacturers to restaurants, retailers and other outlets — have faced higher costs that have pressured profits in a relatively low-margin and fragmented industry.
Those costs include higher pay for truck drivers and logistics workers in a tight labor market.
Performance’s operating expenses jumped more than 9% in its latest quarter partly because of higher personnel costs, the Richmond, Va.,-based company said in May. Operating profit slipped about 2% in the quarter compared with the year earlier to $59.2 million.
Mr. Holm said he doesn’t plan to close any of Reinhart’s 26 distribution centers. Instead, he said Performance wants to use those facilities alongside its own 80 or so centers to more efficiently serve customers across the country.
“One of the biggest advantages this will do for us is it will reduce the number of miles we drive,” he said.
Performance expects to save $50 million in costs annually by the third year after the acquisition is completed. Other efficiencies could come in procuring products from suppliers and hiring outside trucking firms when needed.
Performance said it would retain Reinhart’s drivers, warehouse workers and other employees. Performance has about 18,000 employees, while Rosemont, Ill.,-based Reinhart has 5,600.
A spokesman said Performance would also assess potential staff reductions.
Other food distributors have cut staff recently. Sysco Corp. in February said it would cut about 10% of employees in salaried, corporate support jobs and has closed facilities overseas.
Performance expects to complete the deal by the end of the year. Reinhart’s owner, Reyes, also based in Rosemont, owns companies that distribute beer and Coca-Cola Co. drinks and restaurant-related products.
Reyes Co-Chairman J. Christopher Reyes said in a statement that the deal would benefit Reinhart customers.
Mr. Holm said there isn’t much customer overlap between Performance and Reinhart, including with Reinhart’s accounts with independent restaurants. Sales to non-chain restaurants are more profitable than sales to national brands, Performance executives have said.
Performance said in March that it would buy a company that specializes in distributing candy, beverages and other products to convenience stores. That deal was meant to bolster Performance’s Vistar business, which focuses on distribution at vending machines, movie theaters and other sites.
Shares of Performance have gained about 9% over the past year, according to FactSet, while the S&P 500 rose about 8%.
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