AHOLD TO ADD PYA/MONARCH TO ITS SERVICE MENU
ZAANDAM, Netherlands -- Ahold here last week moved to expand its presence in the U.S. food-service industry, as its wholly owned subsidiary, U.S. Foodservice, Columbia, Md., said it had signed a definitive agreement to acquire PYA/Monarch, a Greenville, S.C.-based food-service distributor that had revenues of $2.7 billion last year.Industry observers noted that while the acquisition would further
August 21, 2000
DAVID GHITELMAN
ZAANDAM, Netherlands -- Ahold here last week moved to expand its presence in the U.S. food-service industry, as its wholly owned subsidiary, U.S. Foodservice, Columbia, Md., said it had signed a definitive agreement to acquire PYA/Monarch, a Greenville, S.C.-based food-service distributor that had revenues of $2.7 billion last year.
Industry observers noted that while the acquisition would further Ahold's previously stated plan to become a multichannel food merchant, it also appears to be a clear response to the present tough regulatory climate that led the company late last year to abandon its effort to acquire Carteret, N.J.-based Pathmark Stores.
Ahold said it would pay $1.57 billion in cash for PYA/Monarch, which is currently a subsidiary of Sara Lee Corp., Chicago.
Ahold said it expects the proposed acquisition to lift U.S. Foodservice sales to $12 billion in 2001, nearly double the $6.2 billion in sales U.S. Foodservice recorded in 1999. Bob Tobin, chairman of Ahold USA, Chantilly, Va., said he anticipates synergy savings of more than $30 million in the first year and $60 million in the second year of the PYA/Monarch acquisition. Ahold completed its acquisition of U.S. Foodservice in April.
PYA/Monarch has a customer base that includes such national restaurant chains as Applebees, Ryans and Subway, as well as health care institutions, universities and hotels, Ahold said.
U.S. Foodservice and PYA/Monarch operated as one company prior to a 1989 leveraged buyout of the Northern division by the current management team of U.S. Foodservice, according to Ahold. As a result, Ahold added, the two companies share a similar business philosophy and use many of the same information-technology infrastructures. Tobin said, "Combining the two companies will result in many cost savings in areas such as sourcing, information technology, distribution and knowledge-sharing."
Cees van der Hoeven, Ahold president and chief executive officer, said the planned acquisition is "fully in line with our international growth strategy.
"Our company continues to grow profitably, organically and through acquisitions in three market channels. First, through its retail store operations -- selling directly to the consumer. Second, its food-service operations -- serving the needs of the fast-growing out-of-home market. Third, in e-commerce."
Jim Miller, president and CEO, U.S. Foodservice, commented, "PYA/Monarch and U.S. Foodservice worked together in the same family many years ago. We have great respect for each other.
"PYA/Monarch's culture and operating practices blend easily with our providing every means for a successful merger."
Gary M. Giblen, director of research and senior vice president at C L King Associates, New York, noted that the PYA/Monarch deal was both part of the company's long-term plans and a reaction to the current regulatory climate.
"Ahold has a proactive strategy toward dominating different aspects of the food industry," he said.
"But their zeal to do it is influenced by the fact that a lot of supermarket deals have been closed off," he added. "The FTC is stricter than they have been. The unknowable thing is that if that might change with the election."
Giblen said he does not think Ahold's increasing focus on food service will have a negative effect on its supermarket operations. "The only problem would be if they were putting too much on their plate and diverting focus," he said, "but Ahold has a balanced management team and can pursue supermarkets and food service at the same time.
"Ahold used to be a follower. Now, they may be forging the next big thing in terms of what happens strategically."
Sara Lee said the transaction, which it expects to complete by the end of October, also includes a supply agreement between Sara Lee's U.S. food and beverage manufacturing operations and U.S Foodservice. Sara Lee's U.S. food and beverage brands include Sara Lee and Hillshire Farm.
Sara Lee said the proposed sale follows its announcement in May that the company planned to narrow its focus to three segments -- food and beverage, intimates and underwear, and household products -- and divest itself of its other holdings.
It had said in May that it planned to complete an initial public offering and split-off of PYA/Monarch within 18 months.