Flowers planning new baking plant in California

by Josh Sosland
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THOMASVILLE, GA. — Flowers Foods, Inc. will build a new plant in Southern California to supply baked foods to that market in connection with its acquisition of the Sara Lee and Earthgrains brands, said Allen L. Shiver, president of Flowers Foods.

In a conference call with investment analysts Nov. 9 Mr. Shiver announced plans for the new plant and outlined how the acquisition will unfold.

An agreement for Flowers to acquire from Grupo Bimbo S.A.B. de C.V. the brands in California as well as the Earthgrains brand in Oklahoma was announced in late October. The transaction is part of an agreement between the Department of Justice and Bimbo in connection with Bimbo’s 2011 acquisition of the North American fresh bakery business of Sara Lee Corp.

Mr. Shiver said the deal will expand Flowers’ California presence from its current modest market share of less than 2% of the fresh bakery market to about 12% — $134 million. While the sales figure is only a bit smaller than the $166 million of Lepage Bakeries (acquired earlier this year by Flowers), the price paid for the two businesses could hardly have been more different. Mr. Shiver said the purchase price in the Bimbo transaction was $50 million. Flowers paid $370 million for Lepage.

The California transaction will unfold in stages during 2013, with Bimbo Bakeries USA supplying Flowers with Sara Lee and Earthgrains bread and buns for distribution for up to 18 months. Flowers has not yet determined how it will supply that market longer term, Mr. Shiver said.

“This acquisition strengthens our position in one of the country’s highest population states,” Mr. Shiver said. “It also enhances our position as the second-largest baker in the country. You will remember that we entered Southern California with a very small presence when we acquired Holsum Phoenix in 2008. Since then, we have been growing our business and currently have approximately 1.7 to 1.8 market share in California. With Sara Lee and Earthgrains sales added to our existing California business, we will have an 11 to 12 share of the California market. We are acquiring $134 million in sales in California and about $1 million in the Oklahoma City area.

“Throughout the transaction, we will be gaining access to new customers throughout California. Adding Sara Lee and Earthgrains to our product offering in California will strengthen our product mix and give us a solid platform from which to grow.”

Mr. Shiver said the acquisition gives Flowers an exclusive perpetual and royalty-free license to the Sara Lee and Earthgrains fresh bread brands in California but does not include bagels or English muffins. The company also acquired the license for the Earthgrains brand for fresh bread in the Oklahoma City market.

“We plan to fund the transaction with cash on hand and existing bank facilities,” he said. “We expect the transaction to be slightly accretive to 2013 earnings, excluding acquisition and start-up costs. In 2014, we expect the new business to contribute to earnings.”

Running through the transaction timetable, Mr. Shiver said the Oklahoma deal will be completed before the end of 2012.

“The timing for the California business is a little more complicated,” he said. “We expect to complete the transaction for the California brands and business in late February. On that closing date, as phase one, we will begin distributing Sara Lee and Earthgrains throughout Southern California using our distribution model. As we expand our distribution system, we will take on part of the Northern California business by early May as phase two, and then the remainder of the state by mid-summer with our phase three. Under the transaction, B.B.U. will supply product for up to 18 months.”

Mr. Shiver noted that Flowers reaches the California market today from its baking plant in Arizona.
“In the future, we plan to build a new bakery to serve Southern California,” he said. “For Northern California, we are evaluating our supply options for the longer term.”
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