Bimbo to acquire Sara Lee fresh baking business
by Josh Sosland
HORSHAM, PA. — Grupo Bimbo S.A.B. de C.V. has agreed to acquire the North American Fresh Bakery business of Sara Lee Corp. The transaction, which is subject to regulatory review, would combine the largest and third largest baking companies in the United States, as measured by annual sales.
Sara Lee said it will be paid $959 million for its fresh baking business and predicted a closing date in the first half of calendar 2011. The company described the deal as “another example of Sara Lee pursuing shareholder value.”
According to Bimbo, the transaction will leave its U.S. subsidiary Bimbo Bakeries USA with 75 baking plants in 31 states, serving the entire continental U.S. market with a network of more than 13,000 sales routes. The company’s workforce will exceed 28,000.
“This transaction demonstrates Grupo Bimbo’s commitment and singular focus on baking,” said Gary Prince, B.B.U. president. “Our goal is to build a U.S. bakery business that provides the highest quality products and best value to customers and consumers.”
Bimbo described the transaction as “highly complementary across product lines, bakeries and geographies.” The company said the Sara Lee product line “fits well” with Bimbo’s variety bread and specialty products.
“Over the past decade Sara Lee has built a successful portfolio with its Soft & Smooth breads, which is a perfect complement to B.B.U.’s line of variety products,” Mr. Prince said. “The companies’ bakery networks also are well balanced. When added to B.B.U.’s facilities, Sara Lee’s bakeries provide us with a strong national network, as Sara Lee has a significant presence in the Midwest and Southeast while B.B.U.’s base is in the Northeast and Texas.”
The transaction ends months of speculation that took on a serious tone following a Milling & Baking News article noting that a turnaround specialist had been named to replace James Nolan as chief executive officer of the Sara Lee baking division.
For Sara Lee, the transaction would mark an unsuccessful end to what has been a 10-year investment in the fresh baking business. The sale price of $959 million represents 66% discount to the $2.8 billion Sara Lee paid when it acquired Earthgrains in 2001. At the time, Earthgrains operated 67 baking plants and currently has 41.
“This strategic move will further enable Sara Lee to aggressively drive growth in our core coffee and protein categories, organically and through acquisitions,” said Marcel Smits, interim chief executive officer of Sara Lee. “In addition to our $2.5 billion to $3 billion share repurchase program, last week’s dividend increase and our strong stock price performance over the past year, this is another example of Sara Lee pursuing shareholder value.”
Sara Lee said both companies were committed to developing the strong brand equity built in the Sara Lee name over the years. Sara Lee will retain the rights to sell the Sara Lee branded frozen desserts and protein products, such as sliced deli meats. Grupo Bimbo will have the rights to the Sara Lee brand in the fresh baked goods category around the world, except for Western Europe, Australia and New Zealand.
Also included in the transaction would be regional brands owned by Sara Lee, including Grandma Sycamore’s, Heiners and Rainbo.
In addition to its 41 baking plants, the company operates 4,800 bakery routes and has a small food service business. In the 12 months ended Oct. 2, the North American Fresh Bakery Business had $2.1 billion in annual sales and $38 million in adjusted operating income.
“We expect to grow the Sara Lee route system by expanding Soft & Smooth’s geographic reach,” Mr. Prince said. “At the same time, we expect to grow the B.B.U. route system with a renewed focus on variety and innovation. B.B.U. will also invest in and renew its regional brands and supply systems. Both Sara Lee and B.B.U. have a wonderful collection of regional brands with rich histories of serving their local markets. Our investments in the supply chain will position these regional brands to grow and flourish.”
B.B.U. said it will invest $1 billion in the United States over the next five years to create an efficient manufacturing and service platform to serve its customers.
“We will build new bakeries where we need them,” Mr. Prince said. “We will renew existing facilities. And, we will improve our technology and infrastructure. We are investing in manufacturing facilities and manufacturing jobs across the United States.”
B.B.U. sales totaled $3.9 billion in 2009. Combined with the Sara Lee business, Bimbo would have annual sales of roughly $6 billion and would be more than twice the size of Flowers Foods, Inc., the nation’s second largest baking company, which had $2.6 billion in sales in 2009.