JBS SA gave up efforts today to raise financing for a Sara Lee Corp. takeover bid, making a spinoff of Sara Lee’s coffee business more likely, according to a person with knowledge of the matter.
JBS, the world’s biggest meat producer, could still make a bid later, though the chances are low, said the person, who declined to be identified because the matter is private. Sara Lee’s board is meeting today to consider a coffee spinoff and choose a permanent chief executive officer after receiving no new bids from JBS or a group led by Apollo Global Management LLC, two people said.
An announcement on a tax-free spinoff, which would leave Sara Lee with a meat business, may come within days, said the people. A decision may not be immediate if JBS submits a new takeover proposal, Apollo decides to increase its offer or another potential suitor emerges, the people said.
“The business I like the most is international beverage, as it has the highest profit margins and is best positioned for growth,” Akshay Jagdale, an analyst at Keybanc Capital Markets, said in a phone interview. “Growth will come from single-serve coffee products like Senseo pods as well as from up and coming markets like Brazil.”
The meat business alone could still attract buyers such as Hormel Foods Corp. and Kraft Foods Inc.’s Oscar Mayer division, the New York-based analyst said. The coffee business could attract suitors in Europe, he said, though buyers may be deterred by rising coffee prices. Julie Craven, a spokeswoman for Hormel, declined to comment. Kraft spokesman Mike Mitchell didn’t immediately return an e-mail seeking comment.
JBS said in a statement today that it hasn’t reached any agreement with Sara Lee as of today that would require it to make a public announcement under securities regulations.
Sara Lee lost as much as 7.6 percent to $17.11 in New York trading today, below the $17.50 price JBS had offered for the company in December. JBS had still been working on lining up financing for a higher offer last night after telling Sara Lee earlier in the week it would make a new bid of $20 to $21 a share, people familiar with the matter said.
Private-equity firms led by Apollo haven’t raised their offer after a bid of about $19 a share made last week was rejected as too low, said the people.
JBS was working with JPMorgan Chase & Co. and Morgan Stanley to try to get more than $3 billion in equity financing for an offer after securing more than $9 billion in loans and bonds, the person said. Blackstone Group LP was working with JBS and interested in taking over Sara Lee’s coffee business, leaving JBS with the meat division in a takeover, people said.
JBS was concerned about the cost of raising the necessary equity financing, said another person. A disagreement had arisen between JBS and Blackstone over the valuation of a combined JBS and Sara Lee, which increased the cost of the equity financing to JBS, the person said. Blackstone’s calculation of the value was lower than JBS’s, the person said.
A Blackstone spokesman declined to comment. Spokesmen for JBS and Sara Lee declined to comment.
Sara Lee, based in Downers Grove, Illinois, has been run by interim CEO Marcel Smits since CEO Brenda Barnes stepped down for medical reasons last year. The stock fell 88 cents to $17.64 at 4 p.m. in New York Stock Exchange composite trading. JBS was unchanged at 6.75 reais in Sao Paulo.
Acquiring Sara Lee would have helped JBS expand beyond its Latin American home turf, building upon prior acquisitions in the U.S. and Europe. Sara Lee’s North American retail meat business, whose sales topped $2.8 billion in the year ended in June, would have accounted for more than 15 percent of JBS’s total revenue.