Debt Pressure! Citigroup lowers Sysco's (SYY.US) target price to $72, the $29.1 billion acquisition case cannot conceal execution concerns.

On March 31st local time, Citigroup lowered the price target for Sysco Corporation (SYY.US) from $88 to $72, while reiterating a "neutral" rating on the stock. The bank stated that Sysco's stock price dropped after the announcement of its plan to acquire Jetro Restaurant Depot. Analysts at the bank pointed out that while the deal is expected to result in earnings accretion, concerns surrounding due diligence and execution risks are valid. Citigroup also noted that it may take several years to disprove the current bearish arguments, which could put pressure on the stock in the short term. Reports on March 30th local time stated that Sysco had agreed to acquire food supplier Jetro Restaurant Depot for $29 billion. This acquisition aims to reach more price-sensitive independent restaurants and expand its market share in this customer segment. The company plans to finance the deal with $21 billion in additional and hybrid debt, as well as $1 billion in cash and equity. Jetro Restaurant Depot operates on a warehouse-style cash and carry model, where customers prepay for goods such as food, beverages, and takeout containers. This model complements Sysco's existing distribution network serving restaurants, hospitals, and hotels. The deal will also allow Sysco to enter higher-margin market segments. Restaurant Depot has around 166 warehouse locations in 35 states in the US. Both companies stated that Restaurant Depot shareholders will receive $21.6 billion in cash and 91.5 million shares of Sysco stock, valued at approximately $7.5 billion based on last Friday's closing price. This will give them about 16% ownership of the combined company. Sysco Corporation sells, markets, and distributes food products to customers in the restaurant, healthcare, education, accommodation, and other foodservice industries, as well as offering a range of non-food items. The company's business is divided into US Foodservice Operations, International Foodservice Operations, SYGMA, and other business segments.