Potential buyers of Sara Lee's homecare business after Unilever deal
- September 30, 2009
||Buyer announcement of binding offer submission
||body care and European detergents business of Sara Lee
||Unilever plc (UK/Holland), multinational FMCG group
||Sara Lee Sorporation (USA), global branded consumer products maker
||strengthen leadership in European skin cleansing and deodorants categories
||focus on core food business, to fund share repurchase programme
||deal covers half of Sara Lee's international body care and household care division
Earlier in 2009, Glenboden predicted that Unilever would win the tender to buy Sara Lee's personal care business. That was an easy prediction to make, of course; what's interesting is that the deal seems to an excellent one for Unilever, in valuation terms and the way they've been able to 'cherrypick' only parts of the portfolio. As for Sara Lee, the fact that most of the proceeds will be returned to shareholders does not speak well for their development strategy. We look at buyers for Sara Lee (homecare and generally)
With revenues of € 750 mln in FY2009, the brands that Unilever is acquiring (in bodycare, especially deodorants and skin care, as well as European detergents), make up half of the international body care and homecare division of Sara Lee.
Unilever has managed to select those brands that are complementary to, rather than overlapping with, its existing portfolio.
In aggregate it's also bought the more profitable half of the portfolio; the EBITDA margin of the acquired businesses is about 17%, while that of the rest of the division is only 14% (estimate).
Some of the acquired brands, like Sanex and Radox, have the potential to join Unilever's € 1 bln in sales brand club. Generally the group's ability to grow these brands, given its powerful distribution system, will mean that the x10 EBITDA valuation multiple will soon look very cheap.
Sara Lee is still looking for buyers for the homecare part of the division, covering air-care, shoe-care, insecticides and non -European cleaning brands. This includes strong names like Ambi-Pur and Kiwi. There's likely to be significant buyer interest, as management has indicated.
Colgate-Palmolive's strong operating profit growth, margins and cashflow in Q2 2009 mean it could afford to buy this business (its operating casflow in H1 2009 alone exceeded US$ 1,2 bln).
Homecare accounts for nearly 25% of the group's global turnover, so about US$ 3,5 bln. Sara Lee's business would add another US$ 1 bln to that.
Strategically, the Sara Lee brands would complement Colgate-Palmolive's homecare portfolio, which is focused so far on fabric conditioners, dishwashing and household cleaners.
The other tip is the privately held US company SC Johnson. That group is focused solely on homecare, and has already been rumoured to be preparing a joint bid, then splitting Sara Lee's personal care and homecare division. Certainly the splitting part has already occurred.
On the other hand SC Johnson already has strong air-care and insecticide brands, so is potentially only interested in the global leading brand in shoe-care, Kiwi.
As for Sara Lee's future, it's already declared that more than half of the proceeds from the Unilever deal, US$ 1 bln, will be returned to shareholders through a share repurchase programme.
That doesn't speak well for Sara Lee's strategy in terms of expansion ambitions. Maybe it's teeing itself up for a big merger with, for example, Kraft, if that group's bid for Cadbury fails.
The synergies for Kraft would be quicker, larger and less risky if it consolidates with Sara Lee rather than diversifies with Cadbury.