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Sara Lee recently interviewed a select group of investment banks to advise on a disposal of its household and personal care unit, two persons claiming knowledge of the situation told mergermarket. That effort, however, has been halted, the same persons said.
The global manufacturer of consumer products went as far as coming up with a short-list of three investment banks to mandate the sale of the unit, both persons claimed. They each noted that it remains unclear whether the effort was halted as a result of decrepit financial markets or because Sara Lee got cold feet about turning itself into a food-only company.
A Sara Lee spokesperson declined comment, and a call to another company official was not returned.
This development comes just as GE also faces a challenging environment in which to execute an important corporate disposal. Deal-making sources told this news service last week that GE would likely to have a tough time selling its appliance unit, as at least one strong bidder has already dropped out of the auction. Offers were due in by today.
Meanwhile, the household and personal care unit has long been thought to be a divestiture candidate for Sara Lee, and recently the idea has been reignited due to the stock’s performance, according to the two persons and three additional industry sources not directly involved in the situation. Since Brenda Barnes took over as CEO in July 2004, Sara Lee’s stock has continually declined.
Sara Lee is still contemplating which of its businesses will remain core in the future, but so far it does not seem to have made any final decisions, said the first industry source. The only catalyst for the company to sell a large unit at this time would be to finance a large buy in an area it has decided to grow, the first industry source added.
The division includes mostly European and other non-US brands such as Sanex body soap, Kiwi shoe polish, and Ambi Pur air freshener.
If Sara Lee ultimately chooses to sell the business, it could get a fairly high multiple for it; perhaps higher than where the company’s own stock trades at the moment, said a second industry source who wasn’t aware of any efforts to sell the household and personal care business.
The household and personal care unit has seen its revenues grow to USD 2.2bn in the year ended June 2008 from USD 2bn in 2007, with the unit’s income increasing to USD 315m from USD 272m over the same period. The segment showed 4.6% volume growth in 2008 versus 2007 -- the fastest-growing segment, in terms of volume, in Sara Lee’s portfolio. While the company saw bigger revenue gains in its bakery businesses and beverage segments, most of those increases came from price hikes.
Potential buyers for the household and personal care business include Reckitt Benckiser (LON: RB), Henkel (FRA: HEN3) and Colgate (NYSE: CL), according to the two persons claiming knowledge and one of the industry sources. Among those three, Henkel is the least likely to make a large buy, following its USD 5.4bn National Starch and Chemical Company buy in 2007, while Colgate may not want all of the household and personal care unit, said the second industry source and the first person claiming knowledge. In fact, the unit was deemed a hard sell because few buyers would want the division in its entirety, the first person claiming knowledge said.
The second industry source suggested that Sara Lee might be more inclined to divest its bread business, Earthgrains, which has been a drag on its stock market valuation, and has performed poorly. Sara Lee’s goal is to improve the profile of its food business, and ultimately sell that business, the second industry source said.
Sara Lee acquired Earthgrains for USD 2.8bn in 2001.
Sara Lee does not break out sales for the Earthgrains fresh bread business. However, revenues for the North American retail bakery, which includes Earthgrains, as well as frozen Sara Lee branded cakes, were USD 2.2bn; income from the unit was USD 55m in 2008. The North American retail bakery segment reported a 3.9% decline in sales volume in the year ended in June.
Sara Lee would be likely to sell the bread business at a loss, but divesting it would boost the company’s stock, the second industry source said.
Sara Lee’s stock hit a 52-week high of USD 16.95 per share this year compared to USD 23 per share in 2004. This news service recently reported that a 5.4% stake that ValueAct recently took in Sara Lee is also likely to lead to divestitures.
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