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Sachem Head seeks control of US Foods board, nominates seven directors

Randy Mancini 4 Feb 15
FILE PHOTO: Scott Ferguson, Managing Partner and Portfolio Manager for Sachem Head Capital Management LP, presents during the 2018 Sohn Investment Conference in New York
FILE PHOTO: Scott Ferguson, Managing Partner and Portfolio Manager for Sachem Head Capital Management LP, presents during the 2018 Sohn Investment Conference in New York City, U.S., April 23, 2018. REUTERS/Brendan McDermid

February 15, 2022

BOSTON (Reuters) -Investment firm Sachem Head Capital Management is trying to take control of US Foods Holding Corp’s board and has nominated seven directors, arguing that the food distributor’s performance has been lagging its peers.

Sachem Head, which owns 8.7% of the company, called the nominations “the last option available” to protect stockholder interests after US Foods failed to make operational improvements and lift margins.

In response, US Foods said it profitably grew market share and expanded core earnings margins in the four years leading up to the pandemic and has since invested roughly $60 million to hire more people.

In a letter to other shareholders, Sachem Head portfolio manager Scott Ferguson said new directors are needed to hold current or future management accountable.

“There is a deep-seated resistance to real change at US Foods, and, in fact, a lack of acknowledgement that there is even a problem,” Ferguson said.

He nominated himself and six others with expertise in supply chain issues, the food industry as well as strategic and financial issues to the 11-member board. The slate includes Bernardo Hees, former chief executive of Kraft Heinz Co.

US Foods, however, said the board still had concerns about Hees’ previous leadership roles.

It said Brazilian regulators had investigated Hees as the former CEO of America Latina Logistica (ALL) over financial irregularities, while Kraft Heinz had to pay a $62 million penalty after U.S. authorities found out it falsified supplier contracts to achieve cost savings during his tenure.

Sachem Head earlier walked away from a proposed settlement that would have handed it a board seat and allowed it to help select another director. The hedge fund has been invested in US Foods since 2018.

US Foods, valued at $8.3 billion, last week said it split the role of chairman and chief executive officer, a step that often appeals to big investors like pension funds who would eventually vote in proxy fights.

Private equity firm KKR owns roughly 10% of the company and has a board seat too.

(Reporting by Svea Herbst-Bayliss; Additional reporting by Praveen Paramasivam in Bengaluru; Editing by Michael Urquhart and Devika Syamnath)