Speaking on the condition of anonymity, the foodservice securities analyst told ID Access that the decision announced today was justified because the price was higher than expected and it removed a business segment that diluted the third largest American distributorship's efforts to focus on its core business - foodservice.
The selling price was better than expected because of the large number of industry rather than investment group buying interest as well as the prevalent national interest in fresh produce, he pointed out.
PFG sold Fresh Express to Chiquita Brands International, Inc., which received commitments from Morgan Stanley Senior Funding, Inc., Wachovia Bank, National Association and Goldman Sachs Credit Partners, L.P., to finance the purchase price, according to the distributorship. Net proceeds after taxes and expenses related to the transaction are expected to be approximately $695 million, PFG said.
Bob Sledd, chairman and ceo, confirmed that the sale would allow PFG to focus entirely on its core broadline and customized foodservice distribution businesses.
"We expect to use approximately $290 million from the net proceeds of the sale to repay all of the company's indebtedness, including estimated prepayment penalties. The balance of these net proceeds will be used primarily for a significant return of capital to shareholders through either share repurchases, cash dividends or some combination of the two. We expect this will leave the company well positioned to pursue continued growth opportunities in the future," Sledd said.
Explaining his view of the lack of synergies between the fresh produce program and the other PFG segments, ID Access' Wall Street source noted that the distributorship was not able to increase its penetration of produce in the foodservice market. Moreover, Fresh Express, which had 40% revenue from foodservice customers, lost a few customers when it was acquired by PFG, he added.
"Vertical integration proved to be a wrong idea" for PFG, the source said. "You could argue that in a certain way it was negative synergies."
He also observed that distributorships that have been considering vertical integration along these lines would now think twice about such plans.
"Sysco is very reluctant about doing any vertical integration," he said, noting that it was "a bit of an anomaly" for PFG, the only company to have attempted it. "PFG will now be able to focus 100% on foodservice. That's what the market wants it to do."