Sysco Corp. shares rose the most in nine months after its planned $3.5 billion takeover of US Foods Inc. was blocked by a federal judge, bringing relief to investors concerned about the company undertaking an ambitious merger.
Sysco climbed 3.1 percent to $38.75, the biggest one-day gain since September 2014. Shares of the Houston-based food distributor had been down 5.3 percent this year through Tuesday’s close.
The proposed takeover was in the works for more than a year, leaving investors guessing about the outcome. With the deal now apparently dead, Sysco can refocus on cost-cutting efforts and technology upgrades that were shelved in anticipation of the merger, according to Erin Lash, an analyst at Morningstar Inc.
“It removes a layer of uncertainty that’s been hanging over the company,” she said. “You have some more clarity on the path they’ll likely take.”
The acquisition of US Foods was blocked over concerns it would reduce competition and raise prices. A federal judge in Washington granted the Federal Trade Commission’s request to delay the tie-up. The case now shifts to the FTC’s in-house administrative court. Sysco said it was disappointed in the decision and would assess “the merits of terminating the merger agreement.”
Lash expects Sysco to look for more acquisition targets, but said the company will probably look for smaller businesses that it can “bolt on” to its existing operations.
“This was a larger, more transformational deal that brings significant risks,” she said. “I don’t think they’ll look to do a deal of similar size.”