Sachem Head is pushing for a Performance Food merger. Here’s why a deal makes sense

Firm: Efficiency Meals Group (PFGC)

Enterprise: Efficiency Meals Group is a meals and foodservice distribution firm that operates by three segments: foodservice, specialty (previously “Vistar”), and comfort. Its foodservice phase distributes a line of nationwide manufacturers, buyer manufacturers, and its proprietary-branded meals and food-related merchandise to impartial and multi-unit chain eating places and different establishments. Its specialty phase focuses on distributing sweet, snacks, drinks, and different gadgets nationally to merchandising, workplace espresso service, theater, retail, hospitality, and different channels. Its comfort phase 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 USA from about 144 distribution amenities to over 300,000 buyer places within the food-away-from-home trade.

Inventory Market Worth: $16.34 billion ($104.40 per share)

Activist: Sachem Head Capital Administration

Proportion possession: ~2 – 4%

Common Price: 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 stable 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 bunch – and created super worth there. Extra not too long ago, after nominating a majority director slate, Sachem Head settled for 3 board seats at US Meals, and most not too long ago 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 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 by three segments. The core foodservice phase (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 companion 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 crew, 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 crew of nominees which can be effectively positioned to navigate PFG by operational enhancements and a strategic analysis.

Whereas there is a chance to enhance working margins on the firm, the principle catalyst right here is the merger with US Meals. The potential synergies that could possibly be attained in such a mix make it very onerous to disregard. These synergies are evident from one other proposed trade consolidation, Sysco’s 2013 try and merge with US Meals. Publicly, this deal was projected to ship annual synergies of a minimum of $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 comparable ranges of synergies utilizing the EBITDA of PFG’s foodservice phase ($1.2 billion), which holds a lot of the synergistic potential, a merger could possibly 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.

Nonetheless, the Sysco/US Meals deal was finally blocked by the Federal Commerce Fee on account of antitrust issues centered round a merger of #1 and #2 that might remove Sysco’s solely nationwide competitor. There are a couple of explanation why a merger between US Meals and Efficiency Meals Group might have a distinct end result. First, this could be a merger of the second and third largest gamers, somewhat 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 underneath the Trump administration is considerably extra favorable than it was when the Sysco deal was reviewed underneath the Obama administration. Whereas any accepted deal would possible 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 a minimum of discover the opportunity of a US Meals merger. And that’s all Sachem Head is asking. They don’t seem to be forcing the corporate to promote however somewhat pleading with them to guage this doubtlessly profitable alternative that has been dropped at them.

In July 2025, US Meals confirmed in an 8-Ok submitting that that they had approached PFG a couple of potential mixture. But it surely 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 bit strain on the board, and Sachem Head is doing that within the type of a threatened proxy struggle that they’d have a good chance of profitable. Not solely are proxy fights concerning the energy of the argument, and Sachem Head has an incredible one right here, however the firm’s shareholder base accommodates many various asset managers which can be extra more likely to assist 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 must 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 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 proper time for a strategic transaction for everybody concerned, besides possibly McPherson. When two firms of comparable dimension merge in a merger of equals, valuation is commonly the simple half. It’s the social points which can be typically the dealbreakers. And that dynamic could possibly be exacerbated when the merger is proposed simply because the sitting president is lastly getting the decision as much as CEO. Nonetheless, 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 must be achievable.

Boards and their advisors and sure shareholders typically viscerally oppose any sort of “promote the corporate” activism, and infrequently for good motive. Typically, we’re the largest critics of that sort of short-term activism that offers 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 completely different, particularly when there are such compelling synergies that create worth for all shareholders. A transaction between gamers of this dimension must come primarily within the type of a stock-based mixture, which might permit PFG and US Meals 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 have the ability to persuade the board of this and an incredible end result for shareholders could be a settlement so as to add two to 3 administrators to the board together with the institution of a brand new committee targeted on evaluating strategic alternate options with a minimum of one of many new administrators on that committee. That would result in a transaction that could possibly be a windfall for everybody concerned.

But when finally an analysis is completed and a standalone path is decided to be the most effective end 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 beneficial.

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.