Firm: Efficiency Meals Group (PFGC)
Enterprise: Efficiency Meals Group is a meals and foodservice distribution firm that operates via three segments: foodservice, specialty (previously “Vistar”), and comfort. Its foodservice section distributes a line of nationwide manufacturers, buyer manufacturers, and its proprietary-branded meals and food-related merchandise to unbiased and multi-unit chain eating places and different establishments. Its specialty section makes a speciality of distributing sweet, snacks, drinks, and different gadgets nationally to merchandising, workplace espresso service, theater, retail, hospitality, and different channels. Its comfort section distributes sweet, snacks, drinks, cigarettes, different tobacco merchandise, meals and foodservice associated merchandise and different gadgets to comfort shops throughout North America. It markets and distributes over 250,000 meals and food-related merchandise to prospects throughout the US from about 144 distribution services to over 300,000 buyer places within the food-away-from-home business.
Inventory Market Worth: $16.34 billion ($104.40 per share)
Activist: Sachem Head Capital Administration
Share possession: ~2 – 4%
Common Value: n/a
Activist Commentary: Sachem Head was based in 2013 by Scott Ferguson, the primary funding skilled employed at Pershing Sq., the place he labored for 9 years. Sachem Head has a historical past of strong worth investing, however we imagine that they actually discovered their activist stride in 2020 with their funding in Olin. Scott Ferguson took a board seat at Olin – the primary public firm board seat he took in an funding that was not a part of a gaggle – and created great worth there. Extra just lately, after nominating a majority director slate, Sachem Head settled for 3 board seats at US Meals, and most just lately settled for a board seat at Twilio in April 2024. Taking board seats signifies each dedication and contribution and this philosophy and magnificence is absolutely paying off for Sachem Head.
What’s taking place
On Aug. 21, Sachem Head delivered a nomination discover for the next 4 candidates to face for election to Efficiency Meals Group’s Board on the 2025 Annual Assembly: Scott D. Ferguson, David A. Toy, R. Chris Kreidler and Karen M. King. Moreover, Sachem Head has urged the corporate to discover a possible enterprise mixture with US Meals and, absent a transaction, additional enhance margins.
Behind the scenes
Efficiency Meals Group is the third largest foodservice distribution firm in North America, behind Sysco and US Meals, which all collectively command roughly 38% market share. The corporate operates via three segments. The core foodservice section (61.8% of EBITDA) distributes nationwide, buyer, and proprietary-branded meals and food-related merchandise. Comfort (20.6%) distributes sweet, snacks, drinks, cigarettes, and different tobacco merchandise to comfort shops. Specialty (17.61%) distributes sweet, snacks, drinks and different gadgets to specialty distributors.
On Aug. 21, Sachem Head delivered a nomination discover for the next 4 candidates to face for election to PFG’s board on the 2025 Annual Assembly: Scott D. Ferguson (founder and managing accomplice of Sachem Head), David A. Toy, R. Chris Kreidler and Karen M. King.
Moreover, Sachem Head has urged PFG to discover a possible enterprise mixture with US Meals and, absent a transaction, additional enhance margins.
Ferguson and Toy beforehand served collectively on the US Meals board as a part of a Sachem Head Cooperation Settlement. At US Meals, Sachem Head helped set up a brand new CEO and administration staff, which catalyzed a profitable turnaround for the corporate. Since Sachem Head filed its 13D at US Meals, the corporate’s inventory has greater than doubled.
The opposite two candidates have simply as a lot expertise: Kreidler was the CFO for Sysco for six years and King is an government vp at McDonald’s and serves on the Aramark board. That is an all-star staff of nominees which are properly positioned to navigate PFG via operational enhancements and a strategic analysis.
Whereas there is a chance to enhance working margins on the firm, the primary catalyst right here is the merger with US Meals. The potential synergies that may very well be attained in such a mixture make it very laborious to disregard. These synergies are evident from one other proposed business consolidation, Sysco’s 2013 try and merge with US Meals. Publicly, this deal was projected to ship annual synergies of not less than $600 million inside three to 4 years relative to US Meals’ $826 million of EBITDA on the time. In different phrases, the projected synergies represented greater than 70% of US Meals’ EBITDA, and the numbers that had been thrown round privately had been even bigger. That is a rare determine, and largely distinctive to the meals distribution panorama and the quantity of buying, logistics and warehouse rationalization synergies that these firms have. Extrapolating these numbers to a US Meals/PFG merger and making use of related ranges of synergies utilizing the EBITDA of PFG’s foodservice section ($1.2 billion), which holds a lot of the synergistic potential, a merger may very well be anticipated to yield $800 million to upwards of $1 billion in synergies. Furthermore, if there’s anybody who may validate this evaluation, it might be Sachem director nominee Chris Kreidler, who was the CFO of Sysco on the time.
Nevertheless, the Sysco/US Meals deal was in the end blocked by the Federal Commerce Fee as a result of antitrust issues centered round a merger of #1 and #2 that will get rid of Sysco’s solely nationwide competitor. There are a number of explanation why a merger between US Meals and Efficiency Meals Group could have a unique final result. First, this might be a merger of the second and third largest gamers, quite than first and second; and in contrast to Sysco, PFG is just not a nationwide competitor, with little to no footprint on the West Coast. Moreover, as we speak’s regulatory surroundings beneath the Trump administration is considerably extra favorable than it was when the Sysco deal was reviewed beneath the Obama administration. Whereas any accepted deal would probably require divestitures in sure markets and there’s no assure of an approval, with potential synergies like this, the Board owes it to its shareholders to not less than discover the potential for a US Meals merger. And that’s all Sachem Head is asking. They aren’t forcing the corporate to promote however quite pleading with them to judge this doubtlessly profitable alternative that has been dropped at them.
In July 2025, US Meals confirmed in an 8-Ok submitting that they’d approached PFG a couple of potential mixture. But it surely takes two to tango and, to date, PFG has not meaningfully engaged with them. Given this present sentiment, honest consideration of this transaction seems unlikely to happen with out asserting somewhat stress on the board, and Sachem Head is doing that within the type of a threatened proxy combat that they’d have a great opportunity of profitable. Not solely are proxy fights in regards to the energy of the argument, and Sachem Head has an ideal one right here, however the firm’s shareholder base comprises many various asset managers which are extra more likely to assist an activist agenda like this than the standard index funds. These shareholders have a historical past of being receptive to good activist campaigns and the potential upside this plan may ship and would even be impressed by the sturdy slate Sachem Head is nominating ought to be sufficient for them to listen to the fund out.
Furthermore, there’s hypothesis that even previous to Sachem Head’s engagement, adjustments within the C-Suite had been imminent. For greater than 17 years, the corporate has been run by CEO George Holm, a extensively revered business chief. Now, it has been rumored that Holm will quickly step down, probably to get replaced by the corporate’s President Scott E. McPherson. A CEO transition like this creates the proper time for a strategic transaction for everybody concerned, besides perhaps McPherson. When two firms of comparable measurement merge in a merger of equals, valuation is commonly the simple half. It’s the social points which are usually the dealbreakers. And that dynamic may very well be exacerbated when the merger is proposed simply because the sitting president is lastly getting the decision as much as CEO. Nevertheless, McPherson hasn’t been a PFG lifer and has solely been with the corporate for a 12 months and a half, so the social points surrounding management of the surviving entity ought to be achievable.
Boards and their advisors and sure shareholders usually viscerally oppose any kind of “promote the corporate” activism, and sometimes for good cause. Usually, we’re the largest critics of that kind of short-term activism that provides the long run worth creation to a non-public fairness fund or a strategic acquirer as a substitute of the shareholders. However a “merge the businesses” thesis is totally different, particularly when there are such compelling synergies that create worth for all shareholders. A transaction between gamers of this measurement must come primarily within the type of a stock-based mixture, which might enable PFG and US Meals shareholders to take part within the long-term worth creation that will come up from the merger.
We anticipate that an skilled activist like Sachem Head will have the ability to persuade the board of this and an ideal final result for shareholders can be a settlement so as to add two to a few administrators to the board together with the institution of a brand new committee targeted on evaluating strategic alternate options with not less than one of many new administrators on that committee. That would result in a transaction that may very well be a windfall for everybody concerned.
But when in the end an analysis is completed and a standalone path is set to be the most effective final result, this stays a powerful firm and a excessive return on capital enterprise with room to enhance on prices and margins across the edges – areas which Sachem Head’s administrators would even be priceless.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Efficiency Meals Group is owned within the fund.
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