What an exciting month January was for Sara Lee (SLE). To recap: Brazilian meat processor JBS SA’s bid of $17.50/share is rejected by the board as too low. Rumors of a spinoff begin to surface, but private equity buyers begin to circle and JBS SA plans on increasing their offer. A short while later, the board rejects the PE group’s bid (rumored at $19/share) as too low (shocker) and ultimately, JBS SA is unable to raise the necessary financing in order to up their bid.
The end result? A spinoff of course, and one which was approved by the board of directors late last week in a day that was full of SLE corporate updates. Well…it should not be too surprising as this is just another milestone in the company’s rich history of corporate transactions (detailed in our previous post here). The spin will create two separate public companies: one containing the North American (“NA”) Retail and Foodservice businesses (excl. NA beverage business) which will retain the ‘Sara Lee’ name and one (unnamed as of now) containing the International Beverage and Bakery businesses, as well as the NA beverage business. The spin is expected to be completed in 2012. A recently released presentation about the spin, contains some basic financial projections for the new companies (SLE often breaks out each segment’s performance in SEC filings which should make it easy to put something together):
|($ in millions)||New Sara Lee||Coffee Company|
|Net Sales||$ 4,200||$ 4,850|
|Adjusted Operating Income||$ 420||$ 500|
|Adjusted Op Income + D&A||$ 580||$ 660|
In addition to the spinoff, the company will pay out a special dividend of $3.00/share mainly funded by the sale of its NA fresh bakery business. The company also filled its leadership void by naming Marcel Smits (currently interim CEO) as CEO and Jan Bennink as Director and Executive Chairman. CJ Fraleigh, currently CEO of Sara Lee NA will become CEO of the spin. These important positions have been vacant (filled by ‘interims’) since ex-CEO Brenda Barnes stepped down due to medical reasons and should serve as a lesson to those who scoff at the recent ‘hot topic’ of succession planning.
Both companies expect to continue paying out dividends and to retain their investment grade credit ratings. Guidance was lowered for the coming year as rising coffee and protein prices further eat into their margins and it is important to note that commodity pressures will remain a risk for the new company.
Each company contains several well-known brands and the coffee company’s international exposure might command a premium multiple due to its growth potential. The split might also make the new companies more easily digestible for potential acquirers. The spin will be tax free to investors although tax issues related to recent asset sales were frequently brought up during the recent conference call. Essentially, there is close to a billion dollars overseas which has yet to be repatriated. It is also worth noting that there is still some possibility, albeit slight at this point, that the company will sell itself. We will keep you updated on the situation.
PS: Yes, I do know that the headline is not the company’s real slogan which is actually ‘Nobody Doesn’t Like Sara Lee’. I will admit that I didn’t always know that though…
Disclosure: Author holds no position in any stock mentioned
- Sara Lee Plans to Split Up Company, Names Smits CEO (businessweek.com)