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    Sara Lee Selling North American Refrigerated Dough Business to Ralcorp

    Deal worth $545 million, will close by end of next year

    Sara Lee Corp. has signed an agreement to sell its North American refrigerated dough business to Ralcorp Frozen Bakery Products Inc., a division of St. Louis-based Ralcorp Holdings Inc. for $545 million. The transaction is anticipated to close by the end of calendar year 2012.

    In May 2011, Downers Grove, Ill.-based Sara Lee revealed that it was evaluating strategic options for its refrigerated dough business, which provides a full range of private brand products, among them basic and specialty biscuits, crescent rolls, pizza and pie crusts and toaster pastries. These items are packaged for, and sold to, major food and mass retailers.

    “The sale of our North American Refrigerated Dough business to Ralcorp is another step forward for Sara Lee as we continue to prepare for our separation into two publicly traded companies,” said Marcel Smits, Sara Lee CEO. “It will better enable our North American business to focus on its branded meats and frozen desserts products, and establish a platform for a strong and independent future.”

    “This transaction will allow Ralcorp to be a private-brand leader in the $1.8 billion refrigerated dough category,” added Kevin J. Hunt, co-CEO and president of Ralcorp. “Together with the refrigerated dough business, we will continue to provide our customers with the high-quality service and products they have come to expect from Ralcorp, which produces Post branded cereals; a variety of value-brand and store-brand foods sold under the individual labels of various grocery, mass-merchandise and drug store retailers; and frozen bakery products sold to in-store bakeries, restaurants and other foodservice customers. “In addition, given its higher margins and free cash flow, we expect this acquisition to result in the creation of significant value for Ralcorp shareholders. The percentage impact of this accretion will be even more significant after the Post Foods separation, as our private-brand earnings base will be smaller. Given the high quality of the business, the attractive financing markets and the tax attributes and synergy potential of the transaction, this acquisition represents the continuation of our strategy of enhancing shareholder value through private-brand acquisitions.”

    The Post Foods separation, which in July was agreed to unanimously in principle by the Ralcorp board of directors, is intended to benefit Ralcorp and Post Foods by enabling each company to develop a capital structure appropriate for its business, and by creating two separate equity currencies that are anticipated to be more valuable, permitting the companies to better incentivize their respective management teams and improving their ability to make acquisitions using stock consideration, if appropriate.

    On a cash basis, Ralcorp expects accretion to be 50 cents per share during the first year. The acquisition is further expected to boost Ralcorp’s cash flow and generate operational synergies of about $6 million to $8 million annually after the third-year post-closing, excluding one-time transition costs.

    Sara Lee’s North American refrigerated dough business employs about 700 people and includes manufacturing facilities in Forest Park, Ga. and Carrollton, Tex. The business generated revenues of more than $300 million in fiscal 2010. When the transaction closes, the business will operate as part of a broader Ralcorp Frozen Bakery Products division. Ralcorp intends to fund the deal through short-term debt to be repaid with the proceeds from the Post Foods separation.
     

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