Sara Lee Splits This Month, Renames North American Business As Hillshire Brands

SLE: Sara Lee logo
Sara Lee

Food and beverage company Sara Lee (NYSE:SLE) has renamed its American Meats business Hillshire Brands in its run up to split later this month, in order to create two separate, pure-play companies: International Beverage business, renamed D.E Master Blenders 1753 (to be merged with CoffeeCo), and North American Meats business. The company’s board has also approved a 1-for-5 reverse stock split of Sara Lee common stock to take effect immediately after the separation. Sara Lee stockholders will receive one ordinary share of D.E MASTER BLENDERS 1753 for each share of Sara Lee CoffeeCo common stock they hold, along with a $3 special dividend per share. The company competes with major food and consumer companies like Kraft Foods (NYSE:KFT) and Nestle (NYSE:NESN).

See our full analysis for Sara Lee

Significant Business Restructuring Ahead Of Split To Focus On Core Brands

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Sara Lee’s North American businesses have suffered due to the slump in foodservice sector and high input costs over the past few quarters. The consumer foodservice industry was hit hard during the recent recession as more consumers chose to eat at home rather than spend money to eat out. Sara Lee has been under-performing and trailing peers despite an envious portfolio of market leading meat brands like Jimmy Dean (breakfast sausage), Hillshire Farm (meat and sausages) and Ball Park (hot dogs). It has now shifted its focus on unlocking the  profitability potential of its core meat brands.

Accordingly, Sara Lee divested its North American fresh bakery business to Group Bimbo, tea and coffee businesses to J.M. Smucker and refrigerated dough business to Ralcorp last year. It also acquired Aidells Sausage in May 2011, a San Francisco-based premium meats business, to expand its presence into the organic and natural meats segment apart from increasing its reach in its retail channels.

Many of Sara Lee’s non-core businesses have so far weighed on the company’s profitability, particularly through inefficient supply-chain management. The split and sale of non-core businesses would help the company streamline its supply chain and rationalize operating expenses to improve returns.

We have a $22.69 Trefis price estimate for Sara Lee, which is at 5% premium to the current market price.

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