Sara Lee may sell bread, bakery division
Sara Lee Corp., the maker of Jimmy Dean foods, is exploring the sale of its North American bread and bakery unit, said people familiar with the matter, a move that would accelerate a broader overhaul of the company.
The business, which includes the largest fresh-bread brand in the U.S., may fetch about $1.5 billion, according to one of the people, who declined to be identified because the process isn't public. Sara Lee hired Bank of America Corp. to advise it on options for the division, these people said.
A sale would extend the multiyear reorganization of Downers Grove-based Sara Lee, which spun off the Hanesbrands Inc. underwear unit in 2006 and last year agreed to divest air freshener and body-care divisions. The company has better growth prospects for its meat and beverage units, according to Erin Swanson, an analyst at Morningstar Inc. in Chicago.
"Sara Lee has struggled to turn around the North American fresh bakery business, and the segment's operating margins continue to lag those of others in the space despite its national presence," Swanson said. She recommends holding the shares. "The segment has been an Achilles' heel for Sara Lee."
A formal sale process hasn't started yet and books for the business aren't out, according to the people. Advisers recently began canvassing private-equity funds to gauge their interest in the business as demand from strategic buyers such as Mexico's Grupo Bimbo SAB may be limited, the people said.
Mike Cummins, a Sara Lee spokesman, declined to comment.
Sara Lee rose 9 cents to $14.59 at 10:27 a.m. in New York Stock Exchange composite trading. The stock had gained 19 percent this year before today.
The company spent $2.8 billion in cash and debt in 2001 to buy breadmaker Earthgrains Co., more than quadrupling annual bakery sales at the time.
The unit has faced competition from cheaper store brands and regional bakeries such as Flowers Foods Inc. Operating profit from the division dropped to $33 million in fiscal 2009, while sales totaled $2.2 billion.
Brenda Barnes, who took a medical leave of absence as chief executive officer in May to recover from a stroke, has tried to grow the U.S. bread business with products such as white bread made with whole grains, and marketing campaigns tied to movies such as "Toy Story 3" and "High School Musical." She has also made acquisitions, like the $72 million purchase of Butter Krust Baking Co. in 2006.
At the same time, Sara Lee has been weighing a separation of the North American bakery unit, said a person with knowledge of management's thinking. An earlier effort to sell the business to Grupo Bimbo failed when the Mexican company agreed instead in 2008 to buy a baked-goods business from Toronto-based George Weston Ltd. for $2.5 billion, the person said.
Marcel Smits, Sara Lee's chief financial officer who is now interim CEO, told investors in February that "the bakery business is not the main driver of our profit and Ebitda improvements as we go forward."