Against the background of its transformational acquisition of the North American Sara Lee fresh baking business, Grupo Bimbo SAB de CV, Mexico City, Mexico, completed a second transaction that received far less attention: the late-2011 acquisition of the Sara Lee’s baking business in Spain and Portugal for about $154 million. Together with its move into China in recent years, the purchase offers insights into Grupo Bimbo’s approach to worldwide growth.
The transaction in Spain was no shock given Grupo Bimbo’s historical ties to the business and its position as the world’s largest baking company, and because Sara Lee had telegraphed a willingness to sell the struggling Iberian business. Still, Daniel Servitje, CEO of Grupo Bimbo, said the acquisition was not a foregone conclusion.
“We looked at that opportunity for many years,” he said. “The baking business in Spain was a company that was established [in 1964] by one of our founding shareholders, Jaime Jorba.”
Not only did he establish the business in Spain, Mr. Jorba consciously tried to replicate the business model of Grupo Bimbo’s Mexican business, using the same brand name, symbols and philosophy. During the 1970s, the Spain-based business was sold to Campbell Taggart Associated Bakeries, the company that — after an acquisition by Anheuser-Busch and a spinoff into The Earthgrains Co. — Sara Lee acquired in 2001.
“We didn’t do the [Spain-based] transaction with Sara Lee at first,” Mr. Servitje said. “We took a very detached look at the business. It was not until around a year afterward. We hadn’t finished the transaction with Sara Lee due to the Department of Justice analysis, and that’s when we agreed to take a second look when Sara Lee said they would sell the unit.”
According to filings with the Securities and Exchange Commission, Sara Lee had taken a $400 million charge against the Spanish baking business before the Bimbo acquisition and wrote off another $371 million in losses afterward. So clearly the business had not been thriving. Still, Mr. Servitje said several positives were identified when Bimbo chose to take it over, generating considerable enthusiasm about long-term prospects.
“We presented a financial case to the board,” he said. “Yes, the brand helps. It allows us to reunite our largest brand on a global basis. We found there are opportunities to add value in Spain and Portugal and get new ideas from the Spanish team for other markets. It’s a terrific team, open to learning new things.
“We’ve always invested with a long-term perspective in each market. Spain is in a tough spot right now. We are committed and believe we will create economic value in the coming years. It will not be profitable from day one.” The business includes more than 1,900 employees, seven production facilities and more than 800 distribution routes.
“It will be good for us to have a direct look at the European market,” Mr. Servitje said. “If we want to be an international company, having a foot in Europe is important for us.”
Pursuing opportunities in Asia
Among the 1.5 billion consumers Grupo Bimbo believes it serves globally with its products, per capita consumption of wheat-based foods varies widely, Mr. Servitje said, pointing to China as a market in which per capita consumption of baked foods remains quite modest. Grupo Bimbo first entered China five or six years ago after exploring several opportunities in Asia, looking to gain a foothold where growth was most ripe. After looking at several countries in South Asia, the company settled on China, where Grupo Bimbo has made a few acquisitions and has enjoyed good growth.
“We are basically a Beijing and northern China baker,” Mr. Servitje said. “We certainly aren’t serving the entire nation. We bake some long-shelf-life items and some fresh products. The population is about 100 million in our market, but with a tiny per capita. Overall, the Chinese market is very small on a per capita basis in our industry compared with others. Second, we’re small in our industry. We’re not the leading baker in China.
“We spend time learning and adapting,” he continued. “It’s a tough market. It’s a market where you have to come out with a lot of innovation. You see others coming out with similar products and different products than yours all the time. I would say we believe this is a great opportunity for us to keep learning and expanding our capabilities to be an international company. We are in the middle of the road there.”