Ahold: Sale of U.S. Foodservice On Course

Dutch multinational food company, Royal Ahold, which also owns Giant Food, agreed in May to a $7.1 billion deal to sell U.S. Foodservice to private equity firms Clayton, Dubilier & Rice and Kohlberg Kravis Roberts & Co.

No. 2 distributor U.S. Foodservice two days ago delayed plans to sell $650 million in senior notes because of weak market conditions, an Ahold spokeswoman confirmed yesterday. This came after the deal was restructured several times over the past week, according to research firm KPD Investment Advisors Inc.

The original offering was for $1.55 billion, which included $1 billion in toggle bonds that allow the issuer to pay interest in additional debt as an alternative to cash and the remaining $550 million in senior subordinated notes.

In response to investor pushback and weak market conditions, U.S. Foodservice restructured the deal, cutting back the note sale to $450 million and making it a private sale, but increasing the amount of toggle notes to $1.1 billion and making half of those cash-paying. Investors still were not willing to buy, so Ahold restructured the deal again, leaving $650 million of senior notes.

Pundits have observed that the hardships financing the U.S. Foodservice sale have raised concerns about sudden weakness in the market for private-equity buyouts. Rising interest rates and underwriters who want better deals have hurt recent buyout plans, they suggested.


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