What’s left of Sara Lee?

Can you divest non-core assets if you don’t really have a core? …

US food and beverage group Sara Lee has sold its North American coffee business to JM Smucker for USD 350 million. The business, which generated USD 285 million in sales this year, was part of the international beverage business the company spun off in January. In a statement, Sara Lee executive chairman Jan Bennink said the sale to the maker of Folgers coffee was part of the Sara Lee’s “mandate to create the strongest possible pure-play company.”

Comment: Although the split earlier this year was clearly a precursor to a divestment, I was mildly surprised to learn there was anything left of Sara Lee to sell.  It got out of apparel back in 2006. In 2009 it sold its personal care business to Unilever. Last year it sold first its North American dough business to Ralcorp, then its fresh bakery operation to Bimbo. It also sold off its Spanish bakery and French dough businesses. The story raises a couple of questions. The first is: is it wise to divest non-core assets if you don’t really have a core? Does Sara Lee have meat at the centre of its brand equity in the same way that Tyson does? I’m not convinced it does, although meat is more or less all it has left to “pure-play” with. The second is: what are discarded Sara Lee assets ultimately worth to their buyers? Grupo Bimbo — which paid close to USD 1 billion for the bakery operation — admitted Monday that it saw “low growth” ahead in the Sara Lee units it acquired. Either: Sara Lee is a company whose assets aren’t up to much; or it’s a company that doesn’t really know what it’s in the game for; or it’s getting stripped piecemeal by shareholders upset at net profits of only USD 642 million on sales of USD 10.8 billion. Could all three be true?

Photo credit: Takeflight Design

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