US Food distributor Fleming Cos., struggling with the bankruptcy of its biggest customer, Kmart Corp., said Wednesday it is paying $430 million (€475million) to buy two companies that supply convenience stores.
Fleming said the acquisitions will make it a national distributor and significantly boost its position in the competitive business of supplying tobacco, beverages and other impulse items to small retailers.
Fleming is buying Core-Mark International Inc., which had $3.4 billion in sales last year, and Head Distributing, which had $350 million in revenues. Both are privately held.
Suburban Dallas-based Fleming expects the deals to more than offset a projected $900 million sales downturn, from $4.5 billion to $3.6 billion, that it expects in sales this year to Kmart, its biggest customer. Fleming had 2001 sales of $15.63 billion.
San Francisco-based Core-Mark is strongest on the West Coast, and Georgia-based Head operates mostly in the Southeast. Fleming supplies Kmart stores around the country but is strongest from Texas north through the middle of the country.
"We really emerge as a business with the capacity to ship any product to any (retail) format in any location," said Fleming chairman and chief executive Mark Hansen.
Hansen said Fleming will become the second-largest distributor to small retailers at about $6 billion a year, trailing only Wal-Mart Stores Inc.'s McLane Co., at $10 billion.
Fleming said the acquisitions would add to revenue next year, which the company projected at $22 billion. Hansen said the company would offer a more detailed financial outlook when it reports first-quarter results on May 7.
Before then, the company hopes to finish plans for absorbing Core-Mark and Head, and to know more about financing the acquisitions, Hansen said in an interview.
Fleming announced it would file plans to sell up to $600 million in stock and debt to pay for the deals. The company also plans to refinance other debt this spring so that none of its debt would mature until 2007.
Fleming would add about 3,000 employees in the deals. Hansen said overlapping administration would be eliminated but said it was too early to put a number on layoffs.
Fleming did not break down the $430 million price for the two distributors. It closed Tuesday on the purchase of family-owned Head, which serves 3,000 stores, and plans to close the acquisition of the larger Core-Mark within three months.
Core-Mark serves nearly 30,000 locations from 19 distribution centers with customers including Circle K, Phillips Petroleum, ARCO AM-PM and 7-Eleven franchisees. It is 71 per cent-owned by private-equity firm Jupiter Partners, which made a $41 million investment in 1996.
In late trading Wednesday on the New York Stock Exchange Fleming shares rose 31 cents to close at $21.87.