Turnaround group, questions at Sara Lee

by Josh Sosland
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DOWNERS GROVE, ILL. — Noting that a turnaround group has been engaged to lead the Fresh Bakery division of Sara Lee Corp., a Wall Street analyst is asking whether the company may be poised to exit the bread business.

While no permanent replacement has yet been named for James W. Nolan as chief executive officer of the Fresh Bakery Division, Michael A. Feder is serving as interim c.e.o. Mr. Feder is managing director of AlixPartners, L.L.P., a global business advisory firm.

In a report that otherwise cast a favorable light on Sara Lee, Robert Moskow, an analyst with Credit Suisse in New York, said he recently asked management, “Would they sell their lousy bread business?”

The question was posed as part of a management meeting from which Mr. Moskow walked away “increasingly impressed with this management team and the progress they have made.”
Regarding the baking business, though, Mr. Moskow suggested no sale appears to be pending but that Sara Lee would sell if a buyer were to emerge.

“They say they are not in any rush, and no one is asking to buy it,” Mr. Moskow said in a May 26 report titled “A Different Sara Lee.” “They run it for value, and they are generating cash. Interestingly, they replaced the G.M. position with a turnaround specialist with experience bringing companies out of bankruptcy. Sara Lee has big savings targets for fiscal year 2011. We believe, they would love to sell it if they can figure out how to separate themselves from the Sara Lee bread brand name. Would they buy Maxwell House or Oscar Mayer with the proceeds? Only if it gives them distribution cost synergies with customers or suppliers on a regional basis. They have already reached full scale on their coffee bean and protein procurement.”

Mr. Feder’s firm, AlixPartners, offers guidance around four areas: operational performance improvement, financial restructuring and bankruptcy reorganization, litigation consulting and financial advisory services.

“The firm’s expertise is in helping clients anticipate, evaluate and successfully resolve urgent, high-impact business challenges in an increasingly complex legal, regulatory and economic landscape,” the company said.

The company said its founder, Jay Alix, has been c.e.o., chief operating officer and chief financial officer of a number of companies dealing with major change. AlixPartners also credits Mr. Alix as having “invented, developed and served in the roles of chief turnaround officer and chief restructuring officer.” He established the business in 1981.

In a biography of Mr. Feder offered by AlixPartners, he is described as “adept at pursuing and implementing creative solutions for troubled and underperforming companies.”

His previous experience included serving as interim c.o.o. of Bally Total Fitness when the company was emerging from Chapter 11 bankruptcy; an adviser to Calpine Corp., a utility that also filed for bankruptcy protection; chief restructuring officer of Avado Brands, Inc., a casual restaurant operator; chief restructuring officer of DIRECTV – Latin America; and adviser to dj Orthopedics in a profit improvement initiative. AlixPartners said the effort resulted in a tenfold increase in stock price.

“His extensive experience allows for a unique platform to provide transitional and crisis management to organizations experiencing financial challenges,” AlixPartners said. “Michael has served in a variety of interim officer and advisory roles where the results were long-term operating and financial stability. He has strong financial and operating skills and is accomplished at managing under liquidity constraints, implementing cost reductions and responding to the competitive pressures that result from changing markets.”

Mr. Feder, who is based at AlixPartners office in Chicago, holds a master’s degree in business administration in finance from New York University’s Leonard N. Stern School of Business. He holds a bachelor’s degree in economics from the University of Michigan.

Sara Lee represents the latest among a number of grain-based foods companies to seek assistance from turnaround specialists in recent years.

Alvarez and Marsal was engaged by Interstate Bakeries Corp. in September 2004 and by American Italian Pasta Co. in September 2005. In both cases, Alvarez managing directors served as chief executives for longer than two years. In January 2005, Stephen F. Cooper, chairman of the turnaround firm Kroll Zolfo Cooper L.L.C., was named c.e.o. of Krispy Kreme Doughnuts, Inc. Mr. Cooper served as Krispy Kreme c.e.o. for a little longer than a year.

The Sara Lee engagement differs from the others in that it is a grain-based foods division of a larger corporation rather than a corporate-wide engagement.

Mr. Moskow was favorably impressed with progress made by Sara Lee.

“Sara Lee is simply a better business now,” he said. “More sophisticated systems and experience are setting the right price at retail. Sara Lee has now Seibol and SAP in place, and is about to launch ‘Demantra,’ which will manage how the company distributes trade promotion dollars. Sara Lee has exited volatile parts of the portfolio, and now operates in fewer geographies. It also has lower cost structure from Project Accelerate. European coffee business has proven that it can better weather downturns now.

“The biggest step change is the S.O.P. (Sales and Operations Planning) process. This has yielded savings by quickly identifying capacity constraints and reducing waste on inventories. They think they are saving $14 million to $18 million per year on waste alone. They have also leapfrogged the competition on outsourcing IT systems and procurement.”

Mr. Moskow described management as “much more responsive to shareholders” and said he did not believe the company would “miss a beat” during the medical leave taken by c.e.o. Brenda Barnes.

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