Sara Lee confirms plans to split business

Posted by Josette Dunn on 31st January 2011

Sara Lee, the US food group, on Friday (28 January) confirmed plans to split itself in two.The company’s senior management has drawn up proposals, backed by its board, to create two publicly-traded businesses.

One company, which will retain the Sara Lee name, will be spun off and focus on the group’s North American grocery retail and foodservice arms. The company, which would have had sales of US$4.1bn in Sara Lee’s last fiscal year, will sell brands including Jimmy Dean meats and Ball Park hot dogs.

The second as yet unnamed firm will consist of Sara Lee’s North American and international beverage operations and its international bakery arm. This business, which includes brands like Douwe Egberts coffee and Bimbo bread, would have reported sales of $4.6bn in fiscal 2009/10.

Sara Lee estimates that the separation will be complete early next year. The move ends months of speculation over the future of the business, which has reportedly received and rejected takeover offers from Brazilian meat JBS and a private-equity consortium led by Apollo Global Management.

Sara Lee chairman James Crown said the move was “a logical step” following last year’s disposals of the company’s bread business in North America to Grupo Bimbo and its international household and body care unit to Unilever.

“We have carefully considered various strategic alternatives, including unsolicited indications of interest in the company,” Crown said. “We believe that the spin-off, plus the one-time special dividend, offers the greatest potential for delivering long-term shareholder value. These two pure-play companies will have their own distinct growth strategies within their respective core markets that will attract a more focused shareholder base.”

Crown, however, will change roles at Sara Lee as the implementation of the spin off begins. Jan Bennink, former CEO of baby food group Numico and a former director at Kraft Foods, has been named as Sara Lee’s executive chairman to lead the split. Crown will retain a seat on the Sara Lee board as lead independent director.

Interim CEO Marcel Smits, meanwhile, has been formally given the job; Mark Garvey, who was Sara Lee’s interim CFO, has also been asked to take that role on a formal basis.

CJ Fraleigh, who is CEO of Sara Lee’s business in North America, will take the helm at the North American grocery retail and foodservice unit when the spin off is completed.

Sara Lee also used the announcement to update its financial guidance for its current fiscal year.

The group also said that it now sees adjusted operating income from continuing operations for the year at $904-940m, compared to $904-969m. Sara Lee pointed to higher green coffee costs for the change.

The company has trimmed its full-year earnings per share forecast, which now stands at $0.85-0.89 against the $0.87-0.94 it offered in November. Coffee costs, as well tax rate changes and alterations to share count and interest costs were given as the reasons.

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