TORONTO — After taking “a disciplined look” at how its retail, real estate and consumer products businesses have performed and weighing their contribution to the group, George Weston Ltd. has decided to sell Weston Foods.
“The bakery has been part of our family and our group of companies since 1882,” Galen G. Weston, chairman and chief executive officer, said during a March 23 conference call with analysts. “From my great grandfather’s first bread route, it has grown to $2 billion of sales, spanning retail and foodservice across North America. For four generations, we’ve turned out many of our consumers’ baked and frozen favorites. Having transformed and modernized the business in recent years, Weston Foods has a strong foundation, attractive and growing margins, a robust list of customers, great brands and a first-rate team.
“With that momentum, we spent last year exploring opportunities to create a step change in Weston Foods’ scale that would allow it to become a truly meaningful part of GWL’s value. But in the end, we did not find the right opportunity. Instead, it’s now clear that pursuing a sale represents the best way to unlock Weston Foods’ potential in strategic product categories, growing market segments and with both new and existing customers. We know Weston Foods has ample room to grow, but it’s best positioned to do so in other hands.
“With the sale of the bakery, we will redouble our focus on real estate and retail. These businesses, Choice Properties and Loblaw, offer our greatest strategic potential.”
Weston Foods serves retail and foodservice customers with packaged fresh bread and rolls as well as frozen and artisan bread and rolls, cakes, donuts, pies, cookies, crackers, wafers and alternatives throughout Canada and the United States. The company produces private label products and many well-known brands including Wonder, Ace Bakery, Country Harvest, D’Italiano, Casa Mendosa, Dave’s Killer Bread and Gadoua.
Richard Dufresne, president and chief financial officer of George Weston, said the Weston Foods’ unit has remained profitable during the COVID pandemic, despite negative sales pressure. The business ended 2020 with sales of $2.1 billion and EBITDA of $200 million, which represents a 9.7% margin, he said.
“Momentum kept building as the year progressed on both revenue and margin performance,” Mr. Dufresne said. “There’s no question Weston Foods is a very attractive asset to the right purchaser. It adds scale in the bakery industry as well as leading market position in a number of categories. Further, certain categories offer substantial growth potential while others drive cash flow. In spite of these strengths and its position as a leading North American bakery, Weston Foods remained a small part of GWL’s overall value, representing less than 10% of our net asset value.”
Despite Weston Foods making up a small percentage within the George Weston portfolio, Mr. Dufresne said management was hopeful the company would be able to unlock ways to create a significant pillar alongside retail and real estate. But scale requires acquisitions, something George Weston was not able to find a fit for the Weston Foods business. A July 2020 article on Bloomberg indicated that George Weston Ltd. explored an acquisition of Swiss baking company Aryzta AG, which recently agreed to sell its North American business to private equity firm Lindsay Goldberg for $850 million.
“I can tell you the team worked very hard over the last few years looking at many opportunities,” Mr. Dufresne said. “And after reviewing all these opportunities, it became very clear that none of them was creating the right value creation opportunity for us. So it’s after that exhaustive effort that we came to the conclusion that the sale was the best approach to pursue.”
He said proceeds from the sale of Weston Foods are likely to be returned to shareholders through share repurchases over time.
Mr. Dufresne said George Weston will be starting the disposal process of Weston Foods “from scratch” and has not received any interest from third parties yet.
“This is an important decision for the group, and we wanted to go public with it first,” he said. “But we’re not ready to hit the road. But the process will be launched over the coming months.”
The decision to sell Weston Foods comes a little more than 12 years after Dunedin Holdings, a subsidiary of George Weston, sold its US fresh bread and baked foods business to Grupo Bimbo SAB de CV for $2.5 billion. The transaction in 2009 included the Arnold, Brownberry, Entenmann’s, Freihofer, Stroehmann and Thomas’ brand names in the United States. The transaction did not include Interbake Foods, which produces biscuits, cookies, cones and wafers, or Maplehurst Bakeries, which produces and distributes frozen bakery products.
A year later, Weston added back on to its North American baking business with the acquisition of Ace Bakery Ltd., a baker of frozen artisan and European-style rustic bread.
In addition to the planned sale of Weston Foods, George Weston announced several management changes.
Mr. Weston, currently chairman and CEO of George Weston Ltd., will add the title of president. He will succeed Sarah Davis, who will retire on May 6. The company also announced that Robert Sawyer will join Loblaw as chief operating officer and that Mr. Dufresne will expand his responsibilities to include becoming CFO of Loblaw on May 6.
“In light of George Weston’s strategic decision to focus on retail and real estate which was announced today, Sarah and I agreed that now is the right time for her to pursue her plans for an early retirement, which she first shared with me upon becoming president in 2017,” Mr. Weston said. “Sarah has made an invaluable contribution to the company, and I appreciate her leadership over the last 14 years. Her authentic, understated style, and commitment to the potential of others, have been hallmarks of her time with Loblaw. She has been an adviser and friend to many, especially to me. We wish her well.”
Ms. Davis has been with Loblaw in positions of increasing responsibility since 2007, including both CFO and chief accounting officer. As president, she led Loblaw to reduce costs by more than $1 billion through innovative productivity improvements. She established the company’s leadership in data and analytics.
In returning to the role of chairman and president, a position he held from 2014 to 2017, Mr. Weston said, “The sale of Weston Foods will allow me to dedicate renewed time and energy at Loblaw as we increase our momentum in both our bricks-and-mortar network, and our leadership in digital and data.”