KKR, CD&R in $7.1bn food distributor deal

Dutch retail giant Royal Ahold has agreed to sell its food distribution company, US Foodservice, to KKR and CD&R for $7.1 billion.

Kohlberg Kravis Roberts and Clayton Dublier & Rice have teamed up for the first time to purchase Royal Ahold’s US Foodservice subsidiary in a $7.1 billion (€5.2 billion) transaction. The deal is expected to close by the end of the year, and is subject to shareholder and regulatory approvals.

Financing will be provided by Citigroup, Deutsche Bank, Goldman Sachs, JP Morgan Securities, Morgan Stanley and Royal Bank of Scotland.

The equity portion of the transaction, the precise amount of which was not disclosed, will be shared equally by the two New York-headquartered private equity firms. KKR and CD&R will also share operational control of the food distribution firm, which was reportedly of interest to several rival firms including The Blackstone Group, Texas Pacific Group and Bain Capital.

CD&R has already had a successful exit related to US Foodservice: In 1995, it bought out Kraft’s former foodservice division, Alliant, for $690 million and sold it six years later to US Foodservice for $2.2 billion.

According to a Reuters report, CD&R approached the Netherlands-based Ahold several times in the past year to try and buyback the company in the aftermath of US Foodservice’s 2003 accounting scandal. The company – which is the second largest food distributor in America and employs more than 27,000 workers – had overstated earnings for several years, prompting shareholder lawsuits. In November 2006, Ahold announced plans to divest the US division.

The food distribution, supply and catering sectors in the UK have been proving particularly attractive to buyout firms recently. In November, European-focused Vision Capital purchased four food businesses, including UK bakery products supplier Fletchers Bakeries, for £160 million; last October, UK midmarket firm Gresham Private Equity sold UK health food supplier Whitworths for £86 million, making six times its investment; and in July 2006, UK-based Phoenix Equity Partners backed a £51 million management buyout of chilled food logistics firm NFT distribution.

CD&R – which specialises in buying distribution-based businesses – is reportedly seeking a £1.2 billion sale of UK catering supply business Brakes. It backed a £434 million management buyout in 2002.

CD&R also announced Wednesday the agreement to sell its laboratory supply portfolio company, VWR International, to Madison Dearborn Partners (MDP). Terms were not disclosed.