(Reuters) - Performance Food Group Co (PFGC.N) said on Monday it would buy privately held rival Reinhart Foodservice LLC for $2 billion, as the distributor of goods to restaurants seeks scale to counter rising transportation costs that have pressured the industry.
Food distributors are facing shrinking margins as transportation costs have surged in recent years, with drivers preferring to work in the construction and manufacturing industries in an expanding U.S. economy.
“We need all the people, so it’s a good situation... Drivers would be the biggest difficulty, hence our need for all the drivers,” Performance Food’s Chief Executive Officer George Holm told Reuters.
The acquisition of Reinhart, the second-largest privately held food distributor in the United States, will create a company with $30 billion in net sales and add independent restaurants to Performance Food’s current customer base that includes Subway, Bloomin’ Brands Inc (BLMN.O) and Restaurant Brands International Inc’s (QSR.TO) Burger King.
Performance Food is buying Reinhart from Reyes Holdings LLC and the deal will give it exposure to the U.S. mid-west, especially the Louisiana region, where Reinhart has two distribution centers.
Following the merger, Performance Food may cut some corporate-level jobs but will retain all employees at distribution centers, Holm said.
The deal is expected to generate $50 million in savings annually by the third year after completion, which is expected by the end of 2019.
Excluding a tax benefit of $265 million, the company will pay $1.7 billion for Reinhart.
Performance Food expects the deal to be low-single digit accretive to adjusted earnings in the first year, rising to double-digit in the third year.
Shares of Performance Food rose as much as 3.4% on Monday.
Reporting by Nivedita Balu in Bengaluru; Editing by James Emmanuel and Sriraj Kalluvila