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Sara Lee CEO Resigns; Is a Breakup Next?

Sara Lee announces that its CEO Brenda Barnes will step down. Industry experts provide insight into what's next for the company -- with one pondering a possible breakup.
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(Sara Lee story updated with additional analyst commentary)
NEW YORK (TheStreet) -- Sara Lee (SLE) announced Monday morning that the company's chairman and CEO Brenda Barnes will step down from her positions to focus on improving her health; Barnes had been on medical leave since May 14 after suffering a stroke.

Barnes, 56, has also resigned from Sara Lee's board of directors and will not run for re-election at the company's annual shareholders meeting in October.

Sara Lee CEO Brenda Barnes steps down.

This week, Sara Lee's board has started the process of selecting a new CEO, searching both internally and externally.

During the process, Marcel Smits will continue as interim chief executive officer and Mark Garvey will continue as interim chief financial officer. James Crown, an independent director, will remain chairman of the board, a role he assumed when Barnes' leave of absence began, and he will continue to lead the Office of the Chairman, comprised of Crown, Smits and CJ Fraleigh, CEO of the company's North American Retail and Foodservice division.

"We fully support Brenda's decision to step down as Chairman and CEO so she can devote all of her time and energy toward improving her health," Crown said in a prepared statement. "She is a remarkable leader who is admired by those inside and outside of the Sara Lee family, and we fully understand and respect her decision. We will conduct a thorough process to identify a CEO successor in a timely manner, and look forward to sustaining the momentum begun under Brenda's leadership."

There is speculation that Smith, Crown and Fraleigh -- coming from diverse backgrounds -- are all frontrunners for the CEO position. All three hold positions in the Office of the Chairman, which was formed when Barnes was unavailable to lead.

Andrew Guzzetti, manager director of Dinosaur Securities, said usually external candidates aren't seen this early in the selection process. Meanwhile, the ideal candidate would be someone who is familiar with the business and "someone who has turned around a company before," Guzzetti said. "I know the selection committee and Chairman's group ...

is looking for somebody they can sell to the Street that makes up for the 24% they loss in stock price. I'm sure that's top on the agenda."

In the meantime, D.A. Davidson & Co analyst Timothy Ramey believes that the appointment will be internal.

Shares of the stock have dropped about 24% since Barnes took the helm in Feb. 2005 and experienced a beating in 2008 and early 2009's down market. However, they're up about 22% year-to-date. Guzzetti noted that the Street has not, of course, taken the 24% share price drop positively, but given its year-to-date uptick, maybe the company's dramatic changes under Barnes may prove to be the correct long-term approach.

Since Barnes took over, Sara Lee has sold its skin-care and deodorants business to


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and its air-freshener unit to


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all for about $2.1 billion, as the company sharpened its focus on its European coffee business and channeled resources into the Jimmy D's breakfast foods division.

D.A. Davidson & Co's Ramey said it will be very difficult to ascertain the direction of the company following Barnes' departure until a successor name is provided. Meanwhile, Guzzetti thinks the company could buy new packaged foods assets with proceeds from Sara Lee's recent asset sales.

Shares of Sara Lee stock are relatively flat in Tuesday trading at $14.83.

In a recent investor note, BMO Capital analyst Kenneth Zaslow wrote that a breakup of Sara Lee could generate more value for the company than the sum of its parts.

Zaslow discussed this possibility as he increased his price target for the Sara Lee stock to $15 from $14, assuming a 10% probability of a breakup of Sara Lee at a price of $23 to $24 a share through relatively tax-efficient transactions; a 20% probability of a sale of the company's global and U.S. bakery businesses yielding a value of $16 to $17 a share; and a 70% probability that Sara Lee remains in its existing state, which yields a stock price of $13 to $14.

Zaslow, who for the story consulted Robert Willens -- an independent tax consultant, author, and adjunct professor at Columbia University's Graduate School of Business -- said he believes that a series of tax-efficient transactions to break up Sara Lee's business is a possibility, even if the probability is low given complications such as tax implications, how to separate the Sara Lee brand, and how to separate foodservice from retail manufacturing.

The BMO analyst said that the breakup of Sara Lee over time would reflect the company's transformation from a conglomerate to a more focused company; its management's familiarity with asset sales or divestitures and its drive to create value for the company and its shareholders; and a series of viable transactions that can effectively break up Sara Lee.

-- Reported by Andrea Tse in New York

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