By Svea Herbst-Bayliss
(Reuters) - Hedge fund Sachem Head Capital Management is in advanced talks to drop a board challenge against US Foods Holding (NYSE:USFD) Corp in exchange for three seats on the food distributor's board of directors and the replacement of Chief Executive Officer Pietro Satriano, people familiar with the matter said on Monday.
The settlement would resolve one of the year's most high-profile corporate fights. US Foods has struggled to boost profit margins in line with competitors such as Sysco Corp (NYSE:SYY) as inflation has surged and supply chains were disrupted during the pandemic.
A deal is not guaranteed and talks could still fall apart before the Rosemont, Illinois-based company's annual meeting of shareholders on May 18, said the sources, who asked not to be identified because the matter is confidential.
A representative for Sachem Head declined to comment. A representative for US Foods did not respond to requests for comment.
Sachem Head is US Foods' biggest shareholder with an 8.7% stake and has been an investors in the food distributor, which has a market capitalization of nearly $8 billion, since 2018.
Scott Ferguson, Sachem Head's founder and portfolio manager, began pushing publicly for changes at US Foods late last year, saying the company has not improved operations as promised.
US Foods, which has been led by Satriano since 2015 responded by announcing reforms, including the addition of two new board members this year. Sachem Head acknowledged these steps and last month reduced the number of board seats it sought to win to five from seven.
Earlier on Monday, proxy advisory firm Institutional Shareholder Services (ISS) recommended that investors back three of Sachem Head's five candidates, including Ferguson.
ISS wrote that two board seats, which US Foods had proposed in previous settlement offers, might not be enough to push for changes effectively.