Sara Lee Splits

Company spinning off beverage, bakery business

Published in CSP Daily News

DOWNERS GROVE, Ill. -- Sara Lee Corp. said that its board of directors has agreed in principle to divide the company into two separate, publicly traded companies. It expects to complete the separation in early calendar year 2012, it said.

Under the plan approved by its board, Sara Lee's North American Retail and North American Foodservice businesses (excluding the North American beverage business) will be spun off, tax-free, into a new public company that will retain the "Sara Lee" name. Its leading brands will include Sara Lee, Jimmy Dean, Ball Park, Hillshire Farm, Chef [image-nocss] Pierre and State Fair. The new company would have reported approximately $4.1 billion in revenue in fiscal 2010.

The yet-to-be-named other company will consist of Sara Lee's current international beverage and bakery businesses, as well as the North American beverage business. Its leading brands will include Douwe Egberts, Senseo, Pickwick, Maison du Cafe, L'OR, Cafe Pilao, Marcilla and Bimbo. This entity would have reported approximately $4.6 billion in revenue in fiscal 2010 using fiscal 2010 actual exchange rates.

Each company is projected to have an investment-grade credit profile, a competitive dividend yield, a corporate tax rate of approximately 35% and future financial flexibility with a targeted gross leverage of 2.0x EBITDA.

In conjunction with the planned separation, the board intends to declare a $3-per-share special dividend on the company's common stock, the majority of which will be funded with proceeds from the sale of the company's North American fresh bakery business. It said that it expects the special dividend to be declared and paid in fiscal 2012 and before completion of the spinoff of Sara Lee's North American Retail and North American Foodservice businesses.

"Today's announcement is a logical step following the divestment of our international household and body care business and the announced sale of our North American fresh bakery business," said James Crown, Sara Lee Corp.'s chairman. "We have carefully considered various strategic alternatives, including unsolicited indications of interest in the company. We believe that the spinoff, plus the one-time special dividend, offers the greatest potential for delivering long-term shareholder value. These two pure-play companies will have their own distinct growth strategies within their respective core markets that will attract a more focused shareholder base."

The board also announced that, effective immediately, it has appointed Jan Bennink, 54, as director and executive chairman. Bennink's primary responsibility is the leadership and implementation of the spinoff, in addition to chairing the board and building and maintaining a senior management team. Bennink replaces Jim Crown, who has served as chairman since May 2010. Crown will continue on the board and will serve as lead independent director.

Bennink has extensive executive leadership experience in the food and beverage and consumer packaged goods industries. Most recently, he served as CEO of Royal Numico and has also held key management positions with Groupe Danone, Benckiser Gmbh and Procter & Gamble. He previously served on the advisory board of ABN AMRO, as well as on the boards of various global companies, including Kraft Foods. He is currently a director of Coca-Cola Enterprises.

Also effective immediately, Sara Lee has appointed Marcel Smits, 49, as CEO. Smits has been serving as the company's interim CEO since May 2010. Smits will be responsible for Sara Lee's day-to-day operations and execution of the company's annual operating plan and strategy.

In addition to Bennink and Smits, the board has named Mark Garvey, 46, as CFO.

Garvey has been serving as interim CFO officer since May 2010.

The board has also determined that CJ Fraleigh, 47, who currently serves as Sara Lee's CEO for North America, will be named CEO of the new North American Retail and Foodservice business upon completion of the spinoff.

In February 2010, Sara Lee Corp. announced a revised capital plan with intent to repurchase between $2.5 and $3 billion of stock. The company repurchased $500 million of shares in fiscal year 2010, $765 million of shares to date in fiscal 2011 and intends to repurchase an additional $535 million of stock in the remainder of this fiscal year, for a cumulative total of $1.8 billion through the end of fiscal 2011.

After payment of the $3 special dividend in fiscal 2012, the company will have returned a total of $3.5 billion of capital to its shareholders since the revised capital plan was announced, and, at this time, does not expect to continue with further share repurchases through the completion of the spin-off. The company said that it expects to maintain its quarterly dividend through the completion of the separation process.

The company is developing detailed implementation plans for the spinoff and will continue to evaluate a variety of methods to enhance the efficiency of the operating structure of the two companies. Sara Lee will consult with relevant works councils during the process. The separation plan will also be subject to final approval by the board, other customary approvals and the receipt of an IRS tax ruling.

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