Nobody Told Us This Was M&A Week
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What recent M&A deals are shaking up the food distribution industry?
It is merger mania this week. This is Motley Fool Money.
Welcome to Motley Fool Money. I'm Tyler Crowe, and today I'm joined by longtime Fool contributors Matt Frankel and Lou Whiteman, with three of us being part of the Hidden Gems team here at Motley Fool. As we said, there has been a lot of movement in the merger and acquisition field in the past couple of days, and we're going to try to break down as many of those deals as we can. Also, we're going to get to some listener questions. To start, let's go with a lot of the deals that's going on in the food industry. We had two doozies. There must have been a lot of lawyers and investment bankers putting in extra hours this past weekend. First, we got news on Monday that Cisco, the food distributor, not the networking hardware company,
How significant is Sysco's $26 billion acquisition of Restaurant Depot?
was acquiring private retailer Restaurant Depot for $26 billion. We'll get into the details in a second here. But I think that was going to be the headline deal we're going to talk about. Then this morning, we had an even bigger deal where McCormick basically said, hold my beer, because they decided to merge with Unilever's food division in a $44 billion deal. What makes that striking is that McCormick itself is a $14 billion company, and Cisco doing a $26 billion deal was a $30 billion company. These are massive transformative changes in pretty sleepy consumer brand food distribution businesses. Personally, as I looked at the initial deals, I was a little dubious. But if forced to choose, I would probably say the Cisco deal looks a little bit better.
But I wanted to turn to you guys and see what you guys thought of both of these.
What does McCormick's $44 billion merger with Unilever's food division mean for the market?
I'm going to start with you, Matt. Are either of these deals making Cisco or McCormick more attractive
I'd agree that the Cisco deal is the more interesting of the two to me. If you're not familiar, Cisco is the largest food service distributor in the United States. I had a short career in the restaurant industry many years ago. I worked at a total of four restaurants across two states. Cisco was the primary food supplier for all of them. That's among the other 700,000 restaurants it serves worldwide. It has a massive distribution network. It gives it a major efficiency advantage over its competitors. On the other hand, Restaurant Depot, it's a network of in-person wholesale restaurant supply warehouses. Think of it as like a Costco or a Sam's Club, but specifically for restaurants. It's carved out a very nice niche among restaurant owners who value flexibility in pricing over the convenience of the national distributor, Cisco.
Yeah. As Matt says, Restaurant Depot is a much different business, arguably a better business, better margins, decent cash flow. It better be because Cisco is paying a price that's higher than Cisco's multiple. They are hoping to see their business improve because of Restaurant Depot. Real question for me is, can they get this done? Last time Cisco tried something like this with U.S. Foods, antitrust got in the way.
What are the implications of major consumer brand mergers?
It's a decade later. And as I said, they are different businesses. But, you know, we'll see how it plays out. Tyler, I do have to say, though, you said interesting. And to me, back when I was in dealmaking world, there was nothing more interesting than a reverse Morris Trust deal. McCormick gets it just for interest, just for that, because they are doing this. They're using this kind of cool thing where they are merging with part of Unilever and Unilever gets to spin it off tax-free. I'm real curious about this because it used to be Deals like this made sense. Shelf space mattered. Jamming more things into a truck that's heading to the store, that gives you scale, that gives you synergies, that was supposed to matter.
Recent history, including Kraft Heinz and some other deals we can get to, it's less settled science now whether that works. Maybe this is an opportunity to find out how much of what went wrong in other deals was the management execution compared to just the strategy.
uh the strategy could make sense mccormick and paper i think is better managed so i i am at least curious to see how this plays out to lose point thinking about like jamming stuff into trucks it it certainly there there is some sort of logic to what's going on here but i feel like m a activity in specifically in like consumer brands has been like that joke from the tv show arrested development it became like an internet meme or it's like well did it work out for them
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Chapters
8 chapters
1
What recent M&A deals are shaking up the food distribution industry?
0:05–1:00
2
How significant is Sysco's $26 billion acquisition of Restaurant Depot?
1:00–1:52
3
What does McCormick's $44 billion merger with Unilever's food division mean for the market?
1:52–3:10
4
What are the implications of major consumer brand mergers?
3:10–6:24
5
Why did Eli Lilly acquire Centessa Pharmaceuticals for $7.8 billion?
6:24–9:51
6
How do recent FDA approval changes impact investing in pharmaceutical companies?
9:51–15:30
7
What are the long-term investment prospects for Whirlpool?
15:30–17:29
8
What are the key takeaways from the listener mailbag questions?
17:29–18:44