Interstate Bakeries' Enticing Aroma

Shares of Interstate Bakeries (IBC ), the largest independent U.S. baker, have been in an upswing since April, rising from 13 to 17. Part of the stock's spike last week was due to Sara Lee's July 2 announcement that it will buy Earthgrains at $40.25 a share---a 55% premium to its closing stock price the day before. Earthgrains is Interstate's largest rival. Interstate has suffered in recent quarters because of declining sales and high energy costs. It is expected to earn only 98 cents a share in fiscal 2001, down from $1.31 in 2000. In 2002, earnings should hit $1.25, partly because of higher pricing. Even so, the betting is that Interstate, often rumored to be a takeover target, will now attract a higher valuation in a buyout deal, says Charles LaLoggia, editor of the newsletter SuperStock Investor, which focuses on potential takeover stocks. Some 29.5% of Interstate's stock is owned by Ralston Purina, which agreed in January to be acquired by Nestle. Indications are that Nestle will now be more eager to shop its Interstate stake because of the hefty premium that Earthgrains has fetched. Nestle has said it doesn't intend to hold on to Ralston's stake in Interstate. LaLoggia, who values the stock at 25 to 30 a share, says a major Mexican company is said to be interested in acquiring Interstate.

By Gene G. Marcial

Before it's here, it's on the Bloomberg Terminal.