Westlake-based Core-Mark acquired by rival in $2.5B deal

PNG investor presentation on acquisition of Core-Mark courtesy

Westlake-based convenience store supplier Core-Mark Holding Company Inc. (NASDAQ: CORE) is being acquired by Richmond, Virginia-based Performance Food Group Company (PFG) (NYSE: PFGC) in a stock and cash transaction valued at $2.5 billion the two companies announced May 18.

The acquisition will expand PFG’s geographic reach and market diversification into the growing convenience store channel, adding approximately $17 billion to net sales, resulting in total PFG pro-forma LTM net sales of approximately $44 billion. Core-Mark operates 32 distribution centers with 7,500 employees. The acquisition will strengthen PFG’s presence in the western U.S., enhance its presence in the south and give the company new markets in Canada.

The transaction will create a convenience business within PFG’s Vistar segment that will include the Core-Mark and Eby-Brown businesses. The expanded convenience business will operate under the Core-Mark brand and will be headquartered in Westlake with Eby-Brown maintaining ongoing operations in Naperville, Illinois. Scott McPherson will continue in his role as President and Chief Executive Officer of Core-Mark, following closing of the transaction. Tom Wake will continue as President and Chief Executive Officer of Eby-Brown, reporting to McPherson.

Under the terms of the transaction, which has been unanimously approved by the Board of Directors of each company, Core-Mark shareholders will receive $23.875 per share in cash and 0.44 PFG shares for each Core-Mark share. The transaction values Core-Mark at approximately $2.5 billion, including Core-Mark’s net debt. Upon closing of the transaction, Core-Mark shareholders will own approximately 13% of the combined company. Core-Mark expects to continue paying its current quarterly dividend through the completion of the transaction.

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“We are excited to announce the strategic acquisition of Core-Mark and welcome the organization to Performance Food Group,” said George Holm, PFG Chairman, President & Chief Executive Officer. “Core-Mark is an outstanding company that we believe will significantly strengthen our business diversification and expansion into the convenience store channel. Core-Mark brings a highly skilled and experienced workforce along with an experienced senior leadership team, which will be valuable additions to the PFG family of companies. This transaction will also combine Core-Mark’s footprint and operational excellence with PFG’s existing capabilities in both convenience and foodservice. The deal comes with strong strategic and financial merits which we believe will generate significant customer benefits and help PFG continue to create long term shareholder value. The two organizations have similar cultures, which we expect will facilitate a smooth integration and transition process. We look forward to getting to know the associates at Core-Mark better and building a strong future as one organization.”

“On behalf of PFG’s Vistar segment, I echo George’s enthusiasm for this transaction,” said Patrick Hagerty, Executive Vice President of PFG and Chief Executive Officer of Vistar. “Adding convenience store distribution in 2019 built up the core strength of our organization, providing another important avenue for growth. Bringing Core-Mark to PFG will continue this journey and complement our existing portfolio. I look forward to us bringing together the best talent in convenience and welcoming Core-Mark associates at close.”

Core-Mark is one of the largest wholesale distributors to the convenience retail industry in North America with approximately $17 billion in net sales. The company has approximately 7,500 employees and operates 32 distribution centers across the United States and Canada. Core-Mark services approximately 40,000 customer locations in all 50 states in the U.S., five Canadian provinces and two Canadian territories.

“This transaction brings together two companies known for their customer-focused approach and dedication to their employees,” said McPherson, Core-Mark President and Chief Executive Officer. “As part of our continuous focus to maximize shareholder value and better serve our customers, our Board evaluated the transaction and determined this combination provides our investors immediate value and the opportunity to participate in the upside potential of being part of a larger, diversified and customer-centric supplier in the foodservice and convenience retail industry. The combination of our two highly complementary businesses creates an even stronger platform to drive growth, as we deliver a best-in-class offering to our customers. I’d like to thank the entire Core-Mark team for their hard work and focus in helping us reach this exciting milestone.”

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Upon closing of the transaction, at least one current Core-Mark director will be added to the PFG Board of Directors.

The strategic and financial benefits, according to PFG, are:

  • Accelerates PFG’s diversification and adds highly complementary assets in the convenience store channel: With the closing of this transaction, PFG will add approximately $17 billion of net sales, resulting in total PFG pro-forma LTM net sales of approximately $44 billion.
  • Adds complementary customer-centric operating model: Core-Mark brings a consistent go-to-market approach with a selling culture focused on customer success.
  • Enhances attractive customer base and product offerings: The transaction builds upon PFG’s current foodservice focus within the convenience channel adding additional customers and product offerings, particularly in the fresh food space.
  • Strong strategic and financial merits: The transaction is expected to be accretive to Adjusted Diluted EPS in the first full fiscal year following the close. The accretion calculation does not include any of the expected cost synergies.
  • Annual run-rate net cost synergies of approximately $40 million expected to be achieved by the third full year after closing.

The transaction is expected to close in the first half of calendar 2022, subject to U.S. federal antitrust clearance, Core-Mark shareholder approval, and other customary closing conditions. The transaction is not subject to PFG shareholder approval.

BMO Capital Markets Corp. acted as the exclusive financial advisor to PFG, and J.P. Morgan Securities LLC provided a fairness opinion to the Board of Directors of PFG. Skadden, Arps, Slate, Meagher & Flom LLP acted as legal counsel to PFG. Barclays acted as the exclusive financial advisor to Core-Mark. Weil, Gotshal & Manges LLP acted as legal counsel to Core-Mark.