Glenboden M & A Originations

Sara Lee sell-off continues with International Bakery unit

Priority Rating priority rating 5
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Origination Status company announcement, August 2011
Asset French refrigerated dough and Spanish bakery businesses of Sara Lee
Buyer potential acquirors include Grupo Bimbo, Aryzta, Lantmannen
Seller Sara Lee Corp. (USA), multinational foods group
Buyer Rationale brands, new geographies
Seller Rationale sale of non-core business ahead of de-merger
NBs completion of sale of North American Fresh Bakery business to Grupo Bimbo expected in September 2011
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Late in 2010, after it was announced Sara Lee was to sell its North American Fresh Bakery (NAFB) business, some including Glenboden predicted that the group's International Bakery (IB) business would be next on the block. That's now in the works; we look at potential buyers, and the future for a down-sized Sara Lee.

'Irreducible core' end-game ...Sara Lee's disposal programme, begun in 2009, will result in a reduction of 40% of its sales revenue, with the group's end-game focus being on its North American Retail and Foodservice (mainly meats and frozen desserts) and International Beverage (coffee and tea) businesses.

Along the way, it's sold its personal care and homecare operations piecemeal, to Unilever, Procter & Gamble and SC Johnson. Meanwhile the sale of NAFB, to Grupo Bimbo of Mexico, is close to completion; as is the sale of US refrigerated dough to Ralcorp.

After selling the divisions that are 'under-performing, with weak competitive prospects stand-alone', the core Sara Lee group will have strong brands and market positions in north America and Europe in particular. Maybe the platform will then exist for acquisitions, notably in USA beverages.

... attractive to buyers ...With an estimated valuation of about US$ 350 mln, based on the NAFB deal as comparative transaction, a market leading position in packaged bread and pastries in Spain and a significant position in refrigerated dough in France, IB should attract significant buyer interest.

Likely bidders may include Grupo Bimbo, Aryzta of Ireland and Sweden's Lantmannen. All three are serial acquirors and, curiously, have similar net debt ratios, at around x2,6 EBITDA, so arguably have headroom for a deal of this size.

In terms of scale, Grupo Bimbo easily heads the list in sales revenue terms (US$ 11 bln including NAFB); followed by Lantmannen (US$ 5,5 bln group total), then Aryzta (US$ 3,5 bln excluding agri-business subsidiary).

... strong buyer rationaleFor Grupo Bimbo, the purchase would be its first significant venture outside the Americas. Also, it would mark the return of the Spanish version of the 'Bimbo' brand, owned by Grupo Bimbo until 1978, back 'home' to Mexican ownership.

For the specialty bakery group Aryzta, the deal would accelerate its growth rate, which declined in 2009 -10, and would be consistent with its non-organic development model - 50% of the group's sales growth is delivered by acquisitions. It would also extend its pan -European footprint.

Similarly for Lantmannen, the diversified grain co-operative whose Unibake division is the largest frozen bakery producer in northern Europe, the deal would provide a breakthrough into south-west Europe. Historically however the group's been less acquisitive than the other two candidates.

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THIS LEAD'S VALUATION
Size (€ mln) 250
Sector bakery products
Asset Quality Iberia leader branded
Seller large plc
Buyer large plc
P/S 0,5
P/Ebitda 9,0
Type valuation estimate
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