US Foods Offered to Appoint Two New Directors, Including Sachem Head Capital Management’s Principal; Sachem Head Declined US Foods’ Offer Without Engagement
February 15, 2022 ROSEMONT, Ill.–(BUSINESS WIRE)–US Foods Holding Corp. BB #:134354, one of the largest foodservice distributors in the United States, today issued the following statement in response to a press release from Sachem Head Capital Management LP, which disclosed its attempt to seek control of the Board of Directors through the nomination of seven directors for election to the Company’s ten-member Board at its 2022 annual meeting.
Since Sachem Head filed its Schedule 13D in respect of US Foods on October 7, 2021, members of our Board and management team have engaged with seriousness and urgency and had numerous discussions with Sachem Head. We approached these discussions with an open mind and a willingness to work constructively.
In December, the Board’s Nominating and Corporate Governance Committee interviewed each of the three director candidates Sachem Head privately proposed. Following these interviews and associated due diligence, we offered to appoint two new directors to the Board, including Scott Ferguson, Sachem Head’s principal, and a mutually agreed-upon second director with relevant supply chain leadership experience.
Sachem Head made the appointment of Bernardo Hees as Executive Chairman a precondition for any engagement.
In the course of its evaluation of Bernardo Hees, the Board identified significant concerns regarding his leadership roles at previous companies, which Mr. Hees was unable to dispel during the interview process. As a result, the Board was not willing to appoint him to the Board, let alone name him Executive Chairman as originally proposed by Sachem Head. Among other things, the Brazilian SEC (The Comissão de Valores Mobiliários or CVM) investigated Mr. Hees as the former CEO and director of America Latina Logistica (ALL) over financial irregularities in the company’s financial statements.
In 2019, ALL and its former executives and directors, including Mr. Hees, paid a fine of BRL 10.27 million to settle with the Brazilian SEC. Separately, Mr. Hees stepped down as CEO of Kraft Heinz in 2019 after the company had to take a $15.4 billion impairment charge. Kraft Heinz’s stock price fell over 50% under Mr. Hees’ leadership, from the close of the merger of Kraft and Heinz in 2015 until Mr. Hees departed in 2019, representing a loss in market capitalization of over $50 billion.
In September 2021, the U.S. Securities and Exchange Commission (“SEC”) found Kraft Heinz had falsified supplier contracts to achieve cost savings and artificially inflated earnings during Mr. Hees’ tenure as CEO. Kraft Heinz consented to a cease-and-desist order and paid a civil penalty of $62 million. More than twenty federal and state-level lawsuits against Kraft Heinz have been filed since the SEC investigation became public, all of which name Mr. Hees as a defendant.
At US Foods, we believe that integrity in leadership matters. Mr. Hees’ interviews did not allay the Board’s concerns about Mr. Hees’ oversight and leadership that resulted in these financial improprieties.
US Foods has demonstrated an ability to create sustainable value for shareholders. US Foods profitably grew market share and expanded EBITDA margins by 90 basis points in the four years leading up to the pandemic. In response to the pandemic, the Company reduced administrative and selling costs by $180 million. US Foods has reinvested roughly one-third of this amount to expand its salesforce to further grow market share.
The Company sees continued opportunity to grow market share, expand gross margins and increase operational efficiencies. The initiatives that drive these outcomes have been underway for over a year and largely overlap with the suggestions made by Sachem Head. In the past year, US Foods has appointed two senior executives with deep supply chain and technology experience. We are confident that the recent changes we have made to enhance our operating model, combined with the execution of our strategy, will drive significant shareholder value creation.
The US Foods Board is composed of ten highly qualified directors with significant expertise in the foodservice and restaurant industry as well as distribution, finance, technology, governance and C-suite operating experience. Over the last four years, the Board has added four new members, reflecting a commitment and openness to fresh ideas, and resulting in an average tenure of the US Foods Board of 5.4 years.
In addition, with diverse directors comprising 30% of the Board, it has cultivated a variety of viewpoints to inform its oversight of the Company. The Board also recently announced changes consistent with its commitment to best practices of corporate governance, including the separation of the roles of Chairman and CEO.
We recognize there is more work to do and are committed to listening to all our shareholders as we drive the business forward. We have substantial opportunities ahead and look forward to discussing our plans and progress on our upcoming earnings call.
Shareholders are not required to take any action at this time. The Board will present its recommendations regarding all director nominees for election at the Company’s 2022 annual meeting in the Company’s definitive proxy statement, accompanying proxy card and other relevant documents to be filed with the SEC. The Company’s 2022 annual meeting has not yet been scheduled.
Centerview Partners LLC and J.P. Morgan Securities LLC are acting as financial advisors to US Foods. Sidley Austin LLP is serving as legal counsel to US Foods.
About US Foods
US Foods is one of America’s great food companies and a leading foodservice distributor, partnering with approximately 250,000 restaurants and foodservice operators to help their businesses succeed. With 69 broadline locations and 80 cash and carry stores, US Foods provides its customers with a broad and innovative food offering and a comprehensive suite of e-commerce, technology and business solutions. US Foods is headquartered in Rosemont, Ill. Visit www.usfoods.com to learn more.
