Company: Performance Food Group (PFGC)
Business: Performance Food Group is a meals and foodservice distribution firm that operates by way of 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 objects 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 objects to comfort shops throughout North America. It markets and distributes over 250,000 meals and food-related merchandise to prospects throughout the United States from about 144 distribution services to over 300,000 buyer places within the food-away-from-home trade.
Stock Market Value: $16.34 billion ($104.40 per share)
Activist: Sachem Head Capital Management
Percentage possession: ~2 – 4%
Average Cost: n/a
Activist Commentary: Sachem Head was based in 2013 by Scott Ferguson, the primary funding skilled employed at Pershing Square, the place he labored for 9 years. Sachem Head has a historical past of strong worth investing, however we consider 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 group – and created super worth there. More just lately, after nominating a majority director slate, Sachem Head settled for three board seats at US Foods, 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 actually paying off for Sachem Head.
What’s taking place
On Aug. 21, Sachem Head delivered a nomination notice for the next 4 candidates to face for election to Performance Food Group’s Board on the 2025 Annual Meeting: Scott D. Ferguson, David A. Toy, R. Chris Kreidler and Karen M. King. Additionally, Sachem Head has urged the corporate to discover a potential enterprise mixture with US Foods and, absent a transaction, additional enhance margins.
Behind the scenes
Performance Food Group is the third largest foodservice distribution firm in North America, behind Sysco and US Foods, which all collectively command roughly 38% market share. The firm operates by way of three segments. The core foodservice section (61.8% of EBITDA) distributes nationwide, buyer, and proprietary-branded meals and food-related merchandise. Convenience (20.6%) distributes sweet, snacks, drinks, cigarettes, and different tobacco merchandise to comfort shops. Specialty (17.61%) distributes sweet, snacks, drinks and different objects 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 Meeting: Scott D. Ferguson (founder and managing accomplice of Sachem Head), David A. Toy, R. Chris Kreidler and Karen M. King.
Additionally, Sachem Head has urged PFG to discover a potential enterprise mixture with US Foods and, absent a transaction, additional enhance margins.
Ferguson and Toy beforehand served collectively on the US Foods board as a part of a Sachem Head Cooperation Agreement. At US Foods, Sachem Head helped set up a new CEO and administration crew, which catalyzed a profitable turnaround for the corporate. Since Sachem Head filed its 13D at US Foods, the corporate’s inventory has greater than doubled.
The different two candidates have simply as a lot expertise: Kreidler was the CFO for Sysco for six years and King is an govt vice chairman at McDonald’s and serves on the Aramark board. This is an all-star crew of nominees which can be effectively positioned to navigate PFG by way of operational enhancements and a strategic analysis.
While there is a possibility to enhance working margins on the firm, the primary catalyst right here is the merger with US Foods. 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 trade consolidation, Sysco’s 2013 try and merge with US Foods. Publicly, this deal was projected to ship annual synergies of a minimum of $600 million inside three to 4 years relative to US Foods’ $826 million of EBITDA on the time. In different phrases, the projected synergies represented greater than 70% of US Foods’ EBITDA, and the numbers that have been thrown round privately have been even bigger. This is a rare determine, and largely distinctive to the meals distribution panorama and the quantity of buying, logistics and warehouse rationalization synergies that these corporations have. Extrapolating these numbers to a US Foods/PFG merger and making use of related ranges of synergies utilizing the EBITDA of PFG’s foodservice section ($1.2 billion), which holds many of the synergistic potential, a merger may very well be anticipated to yield $800 million to upwards of $1 billion in synergies. Moreover, if there is anybody who may validate this evaluation, it will be Sachem director nominee Chris Kreidler, who was the CFO of Sysco on the time.
However, the Sysco/US Foods deal was in the end blocked by the Federal Trade Commission on account of antitrust issues centered round a merger of #1 and #2 that might remove Sysco’s solely nationwide competitor. There are a few causes why a merger between US Food and Performance Food Group could have a totally different end result. First, this could be a merger of the second and third largest gamers, reasonably than first and second; and in contrast to Sysco, PFG is not a nationwide competitor, with little to no footprint on the West Coast. Additionally, right this moment’s regulatory surroundings below the Trump administration is considerably extra favorable than it was when the Sysco deal was reviewed below the Obama administration. While any permitted deal would possible require divestitures in sure markets and there is no assure of an approval, with potential synergies like this, the Board owes it to its shareholders to a minimum of discover the potential of a US Food merger. And that is all Sachem Head is asking. They will not be forcing the corporate to promote however reasonably pleading with them to guage this probably profitable alternative that has been delivered to them.
In July 2025, US Foods confirmed in an 8-Okay submitting that that they had approached PFG about a potential mixture. But it takes two to tango and, thus far, PFG has not meaningfully engaged with them. Given this present sentiment, honest consideration of this transaction seems unlikely to happen with out asserting a little stress on the board, and Sachem Head is doing that within the type of a threatened proxy battle that they’d have a good chance of profitable. Not solely are proxy fights concerning the energy of the argument, and Sachem Head has a nice one right here, however the firm’s shareholder base incorporates many different asset managers which can be extra prone to help an activist agenda like this than the normal 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.
Moreover, there is hypothesis that even previous to Sachem Head’s engagement, modifications within the C-Suite have been imminent. For greater than 17 years, the corporate has been run by CEO George Holm, a extensively revered trade chief. Now, it has been rumored that Holm will quickly step down, possible to get replaced by the corporate’s President Scott E. McPherson. A CEO transition like this creates the right time for a strategic transaction for everybody concerned, besides possibly McPherson. When two corporations of comparable measurement merge in a merger of equals, valuation is typically the straightforward half. It is the social points which can be typically 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. However, McPherson hasn’t been a PFG lifer and has solely been with the corporate for a yr and a half, so the social points surrounding management of the surviving entity ought to be achievable.
Boards and their advisors and sure shareholders typically viscerally oppose any sort of “sell the company” activism, and sometimes for good purpose. Often, we’re the most important critics of that sort of short-term activism that offers the longer term worth creation to a non-public fairness fund or a strategic acquirer as a substitute of the shareholders. But a “merge the companies” 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 Foods shareholders to take part within the long-term worth creation that might come up from the merger.
We count on that an skilled activist like Sachem Head will be capable of persuade the board of this and a nice end result for shareholders could be a settlement so as to add two to a few administrators to the board together with the institution of a new committee centered on evaluating strategic options with a minimum of one of many new administrators on that committee. That may result in a transaction that may very well be a windfall for everybody concerned.
But if in the end an analysis is carried out and a standalone path is decided to be the perfect end result, this stays a sturdy 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 worthwhile.
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. Performance Food Group is owned within the fund.