After rejecting JBS SA‘s offer of $17.50/share, Sara Lee (SLE) was rumored to be favoring a breakup strategy which would likely involve the spinoff of either its coffee or meats division. It is believed that a spinoff would unlock the value of the unrelated businesses and facilitate the sale of each individual unit. While JBS, the world’s largest meat processor, could still make a better offer, there is some concern that obtaining financing for a larger deal might be an issue given the similar sizes of the two corporations.
Sara Lee is no stranger to corporate transactions as former CEO and Chairman Brenda Barnes pursued an “ambitious multi-year plan to transform Sara Lee into a company focused on its food, beverage, and household and body care businesses.” In order to achieve that goal, the company has aggressively sold off assets over the past few years, including their North American fresh bakeries to Grupo Bimbo and their Global Body Care group to Unilever. The company is no stranger to spinoffs either as it set apparel unit Hanesbrands (HBI) free in 2006, and spun off Coach(COH) nearly a decade earlier.
Unfortunately, Ms. Barnes was forced to resign due to illness and the company is currently experiencing a leadership void. There is some speculation that the different candidates for CEO have different ideas as to which path to pursue, but that is just a rumor. Currently, a spinoff is no guarantee and a sale is still very much a possibility. The WSJ’s Deal Journal blog highlights the potential buyers of SLE and the list contains some high profile names including The Apollo Group ( joined by C. Dean Metropoulos) and KKR. The price tag might be high (rumors of $20/share), but that has never stopped the PE industry before. The fact that this would be the first $10b+ PE deal since the financial crisis should not be ignored either. Shares of SLE are currently trading at over $18.
A decision on the break-up is expected by the end of the month, but the renewed interest of other buyers might extend the deadline. Personally, I am not one to play takeover speculation or risk arbitrage (at least not in most cases), but we will keep you posted on the situation here as it could get interesting.
Disclosure: Author holds no position in any stock mentioned.