Debt pressure is mounting! Citibank lowers Sysco(SYY.US)'s target price to $72, as the $29.1 billion acquisition "quenches" but cannot hide execution concerns.

Zhitong Finance APP learned that on March 31 local time, Citigroup lowered its target price for Sysco Corporation (SYY.US) from $88 to $72, while reiterating a “neutral” rating on the stock. The firm said that Sysco’s share price fell after news of its planned acquisition of Jetro Restaurant Depot was released. The firm’s analyst noted that although the deal is expected to have an earnings-per-share accretion effect, concerns about due diligence and execution risk are indeed reasonable. Citigroup also pointed out that it may take several years to disprove the current bearish thesis, which could weigh on the stock for some time.

On March 30 local time, reports said that Sysco had agreed to acquire food supplier Jetro Restaurant Depot for $29 billion. The acquisition aims to reach more independent restaurants that are price-sensitive and expand its market share within this customer segment. The company said it plans to finance the deal with an additional $21 billion in debt and mixed debt, plus $1 billion in cash and equity. Jetro Restaurant Depot uses a warehouse-style purchase-to-deliver model, where customers prepay for goods such as food, beverages, and takeout meal containers. This model complements Sysco’s existing delivery network serving restaurants, hospitals, and hotels.

The transaction will also enable Sysco to enter a more profitable niche market. Restaurant Depot has about 166 warehousing locations across 35 states in the U.S. The two companies said that Restaurant Depot shareholders will receive $21.6 billion in cash and 91.5 million shares of Sysco stock, which is valued at approximately $7.5 billion based on last Friday’s closing price. This will give them about 16% equity ownership in the combined company.

As far as is known, Sysco Corporation sells, promotes, and distributes food products to customers that provide foodservice services to restaurants, medical institutions, educational institutions, lodging facilities, and other entities, and it also offers a range of non-food products. The company’s business is divided into the U.S. Foodservice Operations segment, the International Foodservice Operations segment, SYGMA, and other business segments.