KKR, CD&R barely double their money on U.S. Foods

Kohlberg Kravis Roberts & Co and Clayton Dubilier & Rice LLC may finally get to exit U.S. Foods Holding Corp when it goes public this week — and they’re in line to about double their money.

U.S. Foods is expected to price its offering on May 25 and will likely trade the next day, an underwriting source said. U.S. Foods is offering 44.4 million shares at $21 to $24 each via bookrunners Goldman Sachs, Morgan Stanley and JP Morgan, an S-1 regulatory filing said.

The deal represents a relatively long hold for KKR and CD&R. The PE firms acquired the company, when it was known as U.S. Foodservice, in July 2007. The deal was valued at $7.1 billion. The private equity firms invested $2.25 billion equity, or $1.125 billion each, in the transaction, according to a Moody’s Investors Service report from that time.

In 2013, KKR and CD&R agreed to sell U.S. Foods to Sysco Corp for $8.2 billion, press reports said. Sysco canceled the takeover in June 2015 after a federal judge granted the Federal Trade Commission’s bid for an injunction on antitrust grounds, Forbes reported. U.S. Foods then filed to go public in February.

U.S. Foods is the No. 2 foodservice distributor in the U.S., posting $23 billion in sales for the fiscal year ended Jan. 2, about flat with the year before. The Rosemont, Illinois, company reported net income of $167.5 million compared with a year-earlier $72.9 million loss.

U.S. Foods is heavily leveraged, with about $5 billion in total debt.The company plans to use proceeds from the IPO, about $950 million, to repay $932 million in debt and for general purposes.

PE firms rarely sell stakes in IPOs, and KKR and CD&R are not unloading shares in the offering. Before the IPO, each owned 83.3 million shares, or 49.25 percent, of U.S. Foods  Those holdings are expected to drop to 37.83 percent per firm if the overallotment option is exercised.

A single dividend

KKR and CD&R have taken just one dividend during their nearly nine-year ownership of the company. In January, U.S. Foods paid out a $666.3 million special cash dividend to its other stockholders of record. CD&R and KKR split $657 million ($328.5 million each), while $9.3 million went to a stockholder.

The dividend means the PE firms have earned back a little more than half their investment. At $22.50, the midpoint of the IPO range, their stakes will be valued at $1.87 billion.

The PE firms, including the $1.87 billion paper gain, stand to make 1.95x their money after nearly nine years.

Executives for KKR and CD&R declined comment. U.S. Foods could not be reached for comment.

Action Item: Contact U.S. Foods: William.Murray@usfoods.com

Photo ©iStock/Ken Brown