Of course, a bid now might be opportunistic. Sara Lee has been without the architect of its restructuring since chief executive Brenda Barnes retired due to illness in August. Asset sales have brought debt down to moderate levels. And there is always a good price for a bad business. Sara Lee trades on about seven times prospective earnings before interest, tax, depreciation and amortisation – well below the double-digit multiples typical for attractive consumer goods acquisitions.
However, it is hard to see what might better be done with a collection of commoditised food businesses (bakery, meat processing and food service) and a low-growth coffee arm. Overall profitability has barely varied from a steady 8 per cent operating margin in two decades. Disposing of the North American bakery business, as management plans, should cause that to jump to 12 per cent, calculates CreditSights. But any sale also involves handing care of part of the Sara Lee brand to a third party, and buyers have not rushed to snap up an operation with expensive unionised labour. There seems little reason to linger at the gate.
I don’t think Lex will be buying the stock, but it’s still interesting. A portfolio of good brands with some commodity businesses thrown into the mix at ~7 times EBITDA. KKR could buy it, sell off the commodity businesses and do something with the brands. It might be worth doing some work. Anybody got a buyout analysis they’d care to share?
Disclosure: No position.