Sara Lee Corp plans to split into two public companies focusing on North American meats and international coffee and tea, a move that could make it easier to sell the parts.
Sara Lee announced the plan on Friday, after takeover bids were not enough to entice it to sell the whole company. The decision does not stop Sara Lee from accepting a new bid.
Sara Lee said the split should be done early in 2012 and would include a US$3-per-share special dividend, to be funded with proceeds from the planned sale of its North American fresh bread business. The dividend totals US$1.92 billion based on the number of shares outstanding in October.
Photo: Bloomberg
“We have carefully considered various strategic alternatives, including unsolicited indications of interest in the company,” Sara Lee chairman James Crown said. “We believe that the spin-off, plus the one-time special dividend, offers the greatest potential for delivering long-term shareholder value.”
Two bidders recently emerged: a private equity group led by Apollo Management and one led by Brazil’s JBS SA, the world’s biggest meat processor. Both failed, but someone still could buy Sara Lee.
“I think you can assume that there is no reason ... why that couldn’t happen,” said Marcel Smits, who was named CEO on Friday after serving as interim CEO since May when former CEO Brenda Barnes had a stroke. “It’s not what we’re focused on. What we are focused on is executing a plan to create two pure plays.”
Stifel Nicolaus analyst Christopher Growe said splitting the company up would make the segments more attractive to buyers.
“We still believe JBS, for example, will pursue the meat business within North American retail,” he said in a note.
Potential suitors could include Smithfield Foods Inc and Tyson Foods Inc on the meats side, and J.M. Smucker and Nestle on the coffee side, according to a consumer banker who declined to be identified by name. He added that Blackstone Group and other private equity firms could return to look at the coffee business.
Sara Lee plans to spin off its North American retail and -foodservice business tax-free into a new public company that would retain the Sara Lee name.
Its brands would include Sara Lee desserts, Jimmy Dean sausage, BallPark hot dogs and Hillshire Farm lunchmeats. That business had about US$4.1 billion in revenue last year.
The other company, not yet named, would include Sara Lee’s international beverage and bakery businesses, as well as the North American drinks business. Its brands would include Douwe Egberts and Senseo coffees and Pickwick tea, and would have had revenue of US$4.6 billion last year, using 2010 exchange rates.
On Friday, the company lowered its earnings forecast for this year, in part because of higher coffee costs. It expects full-year earnings of US$0.85 to US$0.89 per share from continuing operations, down from US$0.87 to US$0.94. Analysts on average were expecting US$0.93 per share, according to Thomson Reuters I/B/E/S.
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