Sara Lee Bread Sale: A 'Messy' Move


NEW YORK (TheStreet) -- Numerous reports Wednesday are saying that Sara Lee (SLE) is consider the sale of its troubled, $2.2 billion bread business, and has hired a banking advisor to explore potential buyers.

A report from Crain's indicates that Wonderbread maker Hostess Brands and Campbell Soup's ( CPB) Pepperidge Farm unit have expressed interested in the bread unit.

Other potential buyers could include Mexico-based baking company Grupo Bimbo S.A. de CV, Flowers Foods ( FLO) and private-equity firms, according to the report.
Sara Lee

The business could sell for $1.5 billion, says Bloomberg, vs. the $2.8 billion Sara Lee paid for the bread unit in 2001.

"Why would anyone pay 10x EBITDA for this strategically challenged business?" Credit Suisse analyst Robert Moskow wondered in a research note published this week.

Still Moskow add that he thinks this is the right move for Sara Lee. "The bread business is low margin, zero-growth, and running at a competitive disadvantage in our opinion because of its high labor and benefit costs. In addition, bread has its own direct-to-store distribution network, so Sara Lee would not suffer any loss of scale with customers if it disposed of it," he wrote.

At the same time, Moskow warns of a "messy" separation of the bread business and Sara Lee because the company would have to license the Sara Lee brand to the buyer and "lose quite a bit of control over the brand equity." Therefore, Moskow predicts that the sale process would be protracted.

A Chicago Tribune source says that Sara Lee probably wouldn't sell the bread unit until market conditions improved.

Sara Lee stock has risen 0.8% to $14.61 Wednesday morning, while Campbell Soup Company has edged 0.6% lower to $36.26.

Only July 5, P&G ( PG) announced the completion of its acquisition of the Ambi Pur Brand from Sara Lee for $320 million. The deal was struck as Sara Lee aimed to divest its international household and personal-care products businesses, and focus on its core food and beverage business.

-- Reported by Andrea Tse in New York

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