Ralcorp to Buy Sara Lee’s Dough Business for $545 Million

Ralcorp Holdings Inc. (RAH), the maker of Raisin Bran cereals, agreed to buy Sara Lee Corp. (SLE)’s North American refrigerated-dough unit for $545 million to bolster its private-label brands with pizza and toaster pastries.

The acquisition may boost earnings per share by 30 cents in its first year, excluding one-time expenses, St. Louis-based Ralcorp said today in a statement. The companies expect the deal to be completed by the end of this year.

Ralcorp is expanding its private-label food brands after this year rejecting a $4.9 billion bid from ConAgra Foods Inc. (CAG) Sara Lee, the U.S. food maker planning to break itself up, said the refrigerated-dough unit had sales of about $300 million for its fiscal year ended July 2010.

“It’s a fairly high-margin business,” Tim Ramey, an analyst with D.A. Davidson & Co. in Lake Oswego, Oregon, said today in a telephone interview. The competitive landscape is “Pillsbury and Sara Lee. It’s pretty much a duopoly.” Ramey, who rates Sara Lee “neutral,” said the purchase price is about $100 million more than what he expected.

The purchase of the unit, which also makes specialty biscuits and crescent rolls, will generate savings of $6 million to $8 million annually after the third year, excluding one-time costs, Ralcorp said.

Surging Costs

Ralcorp generated about $3 billion in revenue last year from selling nuts, sauces and frozen foods under retailers’ own brands. Last month, the company announced plans to spin off Post Foods after failing to sell the unit.

Sara Lee’s dough business employs 700 people and has manufacturing and distribution facilities in Carrollton, Texas, and Forest Park, Georgia. After the deal is completed, the unit will operate as part of Ralcorp’s Frozen Bakery Products division.

In May, Sara Lee said it was evaluating options for the refrigerated-dough unit. The company, along with food makers such as Kraft Foods Inc., has raised prices amid surging costs for raw ingredients such as coffee and meat.

Sara Lee, based in Downers Grove, Illinois, rose 76 cents, or 4.4 percent, to $17.89 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 2.2 percent this year. Ralcorp advanced 74 cents, or 1 percent, to $75.03 and has gained 15 percent this year.

To contact the reporter on this story: James Callan in New York at Jcallan2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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