Activist Sachem Head is about to deal with American food

Activist Sachem Head is about to deal with American food

Sachem Head Capital Management is nearing a settlement with U.S. Foods Holding Corp. which would see the activist investor get three board seats at the company, whose chief executive officer will also step down, according to people familiar with the matter.

A representative for Sachem Head declined to comment. A representative for U.S. Foods didn’t immediately respond to a request for comment. Reuters first reported the news of the settlement.

Talks are ongoing and could still fall apart, said the people, who asked to not be identified because the matter isn’t public. It’s not clear who would replace Pietro Satriano, who has been CEO at the company since 2015, according to its website.

The move comes after Institutional Shareholder Services Inc. said in a report Monday it appears that U.S. Foods has underperformed its peers, and that electing three of Sachem Head’s nominees would create a path to replace management if needed.

Sachem Head, which owns an 8.7% stake in U.S. Foods, had been seeking to take control of the 11-member board after nominating seven directors. It has since scaled back its slate to five nominees after two new directors were added to the board. The New York-based hedge fund has argued that additional oversight is needed at the company and that its nominees have the experience to help U.S. Foods improve its performance.

“The dissident has made a compelling case that change is warranted to address management accountability for supply chain improvements, operational efficiency, and investor communications,” ISS said.

U.S. Foods, one of the largest food-service distributors in the U.S., has resisted its push for change and accused Sachem Head of misrepresenting its track record.

 

ISS urged investors to support the election of three of Sachem Head’s nominees, including the firm’s managing partner, Scott Ferguson. It also recommended investors support the election of James Barber and Jeri Finard from the dissident’s slate as well as five uncontested management nominees. It noted that the company had offered to settle with Sachem Head and appoint two of its nominees for the board but there were onerous conditions attached, including a two-year standstill agreement.

“There is a risk that two seats could be insufficient to take the steps that the dissident believes are necessary,” ISS said. “Particularly because the problems identified by the dissident are related to execution, the board may need to evaluate whether this CEO, who has been in that role for almost seven years, is the right fit.” It said support for a third nominee creates a path to ensure Sachem Head’s concerns are heard if management change is needed.

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