Grupo Bimbo to Buy Sara Lee Unit for $959 Million

Sara Lee Corp.'s Jimmy Dean brand biscuit sandwiches
Sara Lee Corp. agreed to sell its North American bakery business to Grupo Bimbo SAB for $959 million, shifting from bread to focus on brands such as its Jimmy Dean breakfast meats division. Photographer: Jin Lee/Bloomberg

Grupo Bimbo SAB, the world’s largest bread maker, agreed to buy Sara Lee Corp.’s North American bakery business for $959 million to boost sales outside Mexico.

The transaction, which includes the right to the Sara Lee brand for bakery goods in the U.S. and regional brands such as Heiner’s and Rainbo, will likely close during the first half of 2011, Mexico City-based Bimbo said today in a statement.

Bimbo, which makes Entenmann’s cakes, Thomas’ English Muffins and Mrs. Baird’s breads, currently gets most of its sales in Mexico. Buying the Sara Lee unit may help make the U.S. Bimbo’s largest market, building on its $2.5 billion purchase of George Weston Ltd.’s U.S. baking operations.

“This is good news for Bimbo, especially because they reached an agreement at a lower price than speculated,” Rogelio Gallegos, who helps manage about $575 million in equities at Actinver SA in Mexico City, said today. “Bimbo has the expertise for this transaction and is becoming a major global player.”

Sara Lee had been looking to sell the business for as much as $1.5 billion, a person familiar with the situation said Oct. 4, declining to be identified because talks were private.

Sara Lee’s North American bread unit faces increasing competition from cheaper store brands and regional bakeries such as Flowers Foods Inc. The division’s sales dropped 3.1 percent to $2.1 billion in the year ended Oct. 2, Downers Grove, Illinois-based Sara Lee said today. The company said that the sale will help drive growth in its coffee and meat businesses.

Cost Savings

Bimbo may get as much as $200 million in cost savings by 2013, Chief Financial Officer Guillermo Quiroz said today in an interview. Ebitda margins -- or earnings, before interest, taxes, depreciation, and amortization -- will likely fall at the U.S. bakery unit to 9.4 percent after the purchase is complete from 11.6 percent now, before rebounding to 12 percent by 2013, he said.

“We’re not buying Sara Lee’s unit for what it’s worth today, but for what it’s going to be worth tomorrow,” Quiroz said later in a presentation.

Bimbo will have the right to sell the Sara Lee brand in the fresh baked goods category globally, except in Western Europe, Australia and New Zealand. The Sara Lee business includes about 13,000 employees, 41 plants and 4,800 distribution routes.

Sara Lee rose 41 cents, or 2.8 percent, to $15.21 as of the 4:15 p.m. close of New York Stock Exchange composite trading. The shares have increased 25 percent this year, compared with an 8.8 percent increase in the Standard & Poor’s 500 Index.

‘Dark Chapter’

“This does mark the end of a dark chapter in Sara Lee’s history,” Christopher Growe, an analyst at Stifel Nicolaus in St. Louis, said today in a note to investors. “Divesting itself of these slower growth, very low margin businesses should improve the overall growth and margin profile of the company going forward.”

Grupo Bimbo rose 4.44 pesos, or 4.6 percent, to 101.90 pesos, its biggest gain since March 26, on the Mexican Stock Exchange. The shares have gained 26 percent in the past year.

Bimbo said it will use its own cash and tap credit lines to finance the transaction.

Bimbo plans to invest $1 billion in the next five years in the U.S. manufacturing and distribution program “to improve the efficiency of this platform,” Gary Prince, president of Bimbo Bakeries USA, said in a statement today.

Debt Ratio

Bimbo’s debt ratio to earnings before interest, taxes, depreciation, and amortization will increase to 2.6 times after the transaction, from 2.3 times in 2009, according to a presentation posted today on Bimbo’s website.

Food companies worldwide in the last five years have received an average 19 percent premium when getting acquired, according to Bloomberg data.

Sara Lee also today posted a 32 percent drop in first-quarter profit. Net income fell to $192 million, or 29 cents a share. Excluding some items, profit was 21 cents, and earnings from continuing operations on that basis were 13 cents. Analysts projected earnings of 18 cents, the average of estimates compiled by Bloomberg.

Sara Lee boosted its growth forecast for fiscal 2011 adjusted earnings from continuing operations by 4 cents to as much as 99 cents per share. Previously it had been as much as 95 cents per share.


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