SYY Sysco Corp

By Annie Gasparro and David Benoit 

Sysco Corp. agreed to add Nelson Peltz and Josh Frank of Trian Fund Management LP to its board less than a week after the investment fund disclosed a 7% stake in the food distributor, an unusually fast agreement that reflects activist investors' growing clout with public companies.

Sysco, which delivers food and supplies to restaurants and hospitals, faces pressure to bolster profit margins and hone a new strategy in the wake of its failed attempt to acquire rival US Foods Inc.

The move to expand Sysco's board to 12 members comes after Trian--led by Mr. Peltz, its chief executive and co-founder--said last week that Sysco hadn't lived up to its potential and should run itself more efficiently. Trian, which became Sysco's largest shareholder through its investment, also said Sysco should better align management's compensation with the company's performance.

"We have engaged in constructive dialogue with Nelson and Josh and look forward to benefiting from their insights and contributions," Sysco's nonexecutive chairman, Jackie Ward, said in a statement Thursday.

The accord marks one of the more rapid examples of activists gaining board seats without a public battle, a sign of their increasing influence among companies and other shareholders. Last year, activists gained board seats at a record 107 companies, 91 of them through pacts negotiated with the companies, according to data provider FactSet. This year has gotten off to an even faster start, with activists gaining seats at 86 companies in the first half alone.

Trian long has exercised its muscle as among the most successful activist firms in securing board seats. The roughly $12 billion New York fund believes gaining those seats is the best way it can help companies it invests in.

"Sysco is a leader in its business, and we believe it is undervalued and has tremendous long-term potential," Mr. Peltz said Thursday.

Houston-based Sysco, the largest U.S. food distributor by sales, had touted its planned $3.5 billion acquisition of US Foods as a way to cut costs and run a larger, more efficient operation. The merger was in the works for about 18 months before Sysco dropped it in June after a federal judge issued a preliminary injunction to block the deal on antitrust grounds.

Sysco's operating profit margin has declined for the past several years, as local, specialty distributors and wholesale stores, such as Restaurant Depot, attract smaller restaurant customers, which are typically more profitable for Sysco than national chains. Meanwhile, sluggish U.S. restaurant sales overall have pinched Sysco's revenues.

Trian's partners are no strangers to the food industry, a specialty of the 73-year-old Mr. Peltz. Trian's first investment, in 2005, was in Wendy's Co., where Mr. Peltz remains chairman. He also serves on the board of snacks giant Mondelez International Inc.

Mr. Frank, a younger partner at the firm at 36, has been involved in many of Trian's consumer-goods investments.

Sysco has scheduled an investor conference for Sept. 15, when it plans to discuss its plans for cost-cutting, smaller acquisitions, and improving its technology and product assortment. Chief Executive Bill DeLaney reiterated on Thursday that the company plans to repurchase $3 billion more of its shares over the next two years. Over the past three years, the company has cut $750 million in annual costs, he has said.

Josh Beckerman contributed to this article.

Write to Josh Beckerman at josh.beckerman@wsj.com

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(END) Dow Jones Newswires

August 20, 2015 19:02 ET (23:02 GMT)

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