Mexico’s Bimbo to Buy Canada Bread for $1.66 BillionAdam Williams and Liezel Hill
Grupo Bimbo SAB, the world’s largest bread maker, agreed to acquire Maple Leaf Foods Inc.’s Canadian baked-goods business for about C$1.83 billion ($1.66 billion) to further expand outside of its home market in Mexico.
The purchase price for Canada Bread Co. is C$72 a share, Toronto-based Maple Leaf said today in a statement. That’s 18 percent more than the closing price on the last day of regular trading before Maple Leaf said it was exploring options for the company.
The deal is Bimbo’s biggest since its $2.5 billion acquisition of George Weston Ltd’s U.S. operations in 2009, according to data compiled by Bloomberg. The producer of Sara Lee products said buying Canada Bread will help strengthen its presence in the Americas.
“Canada Bread brings experience in the frozen bakery business that really enables us to expand our North American offering,” Chief Executive Officer Daniel Servitje said in a conference call. “We see the Canadian bread market as a very compelling opportunity.”
Canada Bread will add more than C$185 million to Bimbo’s earnings before interest, taxes, depreciation and amortization, he said. Sales are expected to increase more than C$1.4 billion and the deal should be finalized next quarter, Servitje said.
Shares in Canada Bread surged 7.3 percent to C$72.20 in Toronto. Bimbo rose 0.9 percent to 35.50 pesos after falling as much as 1.6 percent.
The Mexican company, which has 148 plants and operates in 19 countries, arranged a $2 billion line of credit due 2019 with a group including Bank of America Corp. and BBVA Bancomer SA to finance the acquisition, it said today.
The company last year won an auction to buy bankrupt Hostess Brands Inc.’s Beefsteak bread brand and in 2011 agreed to acquire Sara Lee Corp.’s North American bakeries for $675 million. Bimbo generated $1.17 of net income from every $100 of sales at the end of 2012, down from $5.25 at the end of 2008, according to data compiled by Bloomberg.
“We expect negative reactions for Bimbo due to this leveraged purchased, especially given the moment of the market and the conditions that are still hindering their last acquisitions in the U.S.,” Gaspar Quijano, senior analyst at Vector Casa de Bolsa SA, said today in a research report.
The acquisition values the company at about 1.1 times sales, in line with the median value of the broader BI North American food group, according to Bloomberg Industries.
Based on yesterday’s closing share prices, Canada Bread has an enterprise value of nine times estimated Ebitda, 25 percent less than the average of its peers, the data show.
Maple Leaf, which owns 90 percent of Canada Bread and is selling assets to focus on its packaged-meats business, intends to use the proceeds to repay debt, grow the business and may also return proceeds from the sale to shareholders within three years of the closing of the deal, it said today.
Chief Executive Officer Michael McCain has been remaking the company after 23 people died and 34 others were poisoned by listeriosis contamination in 2008 from meat processed at a Toronto plant. The company is closing plants while increasing efficiency at others as part of a seven-year restructuring plan to boost profits in its protein business.
Once that process is completed in 2015, the company will shift its focus to growth, which could take place both internally and externally, McCain said on a conference call today.
Maple Leaf agreed to sell its animal-rendering business to Darling International Inc. for about C$645 million in August and also announced the sale of its commercial turkey farms and hatchery operations to Ernald Enterprises Ltd. and Cuddy Farms Ltd. respectively last year, for undisclosed sums.
The company drew bids for Canada Bread from Flowers Foods Inc. and several private equity firms, as well as Bimbo, people with knowledge of the matter said in November.
Canada Bread makes fresh and frozen flour-based goods and sells them through brands including Dempster’s and Olafson’s, according to the company’s website. The combined company will have about $15 billion in revenue, with the majority of sales coming from North America.
Centerview Partners LLC and RBC Capital Markets advised Maple Leaf on the sale.