Coverage: US Foods raises $1 billion in IPO

The initial public offering of food distributor US Foods Holdings Corp. priced Wednesday, with the Rosemont, Illinois-based company selling more than $1 billion in stock that will begin trading Thursday.

Maureen Farrell and Corrie Driebusch of The Wall Street Journal had the day’s news:

The food-distribution company, owned by private-equity firms Clayton Dubilier & Rice LLC and KKR & Co., sold shares after the market closed at $23 apiece, raising $1.02 billion, according to a person familiar with the matter. That makes it the second-biggest IPO in a lackluster year for public debuts.

US Foods had targeted a per-share price of between $21 and $24.

The offering values US Foods, which recently tried in vain to sell itself, at just over $5 billion, including a possible underwriters’ allotment for shares. Nine years ago, the buyout firms paid just over $7 billion for the company.

After previously paying themselves a big dividend, paying off debt and boosting revenue, the buyout firms have roughly doubled their investment on paper, according to two people familiar with the matter.

Alex Barinka of Bloomberg News looked at US Foods’ failed merger and why investors would be interested in buying its stock:

Food distributor Sysco Corp. was prevented by regulators from buying US Foods last June, after agreeing to acquire the company in 2013 for about $3.5 billion. That process, which lasted for about a year and a half, disrupted growth and created a miasma of uncertainty that the company is still trying to shake off.

Investors seem willing to look beyond that. As of Tuesday, there was demand for more shares than were being offered at the marketed range, people with knowledge of the matter said, asking not to be identified because the information is private.

One reason may be something the company highlighted on its marketing tour, or roadshow, for the IPO: scale. US Foods is one of two national players in a fragmented industry, selling to independent restaurants, chains and larger institutions like hospitals.

“You’ve only got Sysco and US Foods that have a national footprint,” said Ajay Jain, a senior analyst at Pivotal Research Group LLC in New York. “In the case of the food-service distribution industry, it’s somewhat unique in that you don’t have a lot of visible names in that sector.”

Eric Volkman of The Motley Fool compared US Foods to Sysco in terms of growth and performance:

Citing data from research company Technomic, US Foods Holding said the market should expand at a compound annual growth rate of 2.4% for the 2015 to 2020 period. This compares favorably to the 1.3% from 2010 to 2015.

Higher growth would surely help the company’s results. Net sales have advanced only incrementally over the past few years, coming in at $23.1 billion last year, $23.0 billion in 2014, and $22.3 billion in 2013. Since 2011, it’s booked only a single annual net profit ($168 million last year).

By contrast, although Sysco’s revenue growth is only slightly more dynamic, it consistently lands in the black. It’s also extremely reliable at returning money to its investors — in fact, it’s a Dividend Aristocrat, a rare bird that’s lifted its payout at least once every year for a minimum of 25 years running. The company’s current distribution yields a respectable 2.6%.

Shareholders won’t be rewarded as handsome by holding US Foods Holding. In its latest IPO regulatory filing, the company bluntly admitted, “We have no current plans to pay dividends on our common stock after the completion of this offering.”