Sara Lee to Split Up After Rejecting PE Offers, But Bidders May Circle Back

It’s official. After rejecting several takeover offers, Sara Lee is splitting up.

The Downers Grove, Ill.-based company said Friday that its board has agreed in principle to divide into two separate, public companies. Sara Lee’s North American retail and food service business will be part of a new company that retains the “Sara Lee” name. Brands will include Jimmy Dean sausages, Ball Park Franks and Hillshire Farm lunch meats. This company is expected to have $4.1 billion in annual revenue.

The other company — which still doesn’t have a name — will include Sara Lee’s international and North American beverage unit, as well as its bakery businesses. Brands will include Douwe Egberts, Senseo and Bimbo. This company will have about $4.6 billion in annual revenue.

Sara Lee’s decision to split up is “the most tax efficient strategy” available to it, says one banker who asked not be named. “Unfortunately, in this country corporate taxes are so high that this was the only option that made sense,” the source says.

But don’t think the Sara Lee saga is over. After the spin, PE firms may try to take one of the two companies private later on, the banker says. This is interesting since JBS, if it was successful, had planned to sell Sara Lee’s coffee business to Blackstone Group.

Sara Lee also said Friday that it will provide a $3 dividend to shareholders, and it named Jan Bennink its executive chairman and director.

Shares of the company were trading for $17.29 Friday morning, down 34 cents, or 1.98 percent. The stock has surged nearly 40% since the buyout rumors emerged in October.

For the past several months, Sara Lee has been entertaining offers from PE and strategics. Apollo Global Management led one group, and JBS, the Brazilian meat producer, led another. Sara Lee reportedly wanted $20 a share but the groups came in with less. The Apollo-led group, which included Bain and TPG, reportedly offered $18 a share while JBS came in with a bid of $17.50 a share, according to reports. Sara Lee also shut out KKR after it reportedly made a “low ball” offer for the company.