The Sara Lee Spin-Off: 10 Questions And Answers

Jun.25.12 | About: Hillshire Brands (HSH)

The year-long unwinding of the Sara Lee (SLE) empire, which has included the transfer of the dough and hot beverage divisions to Ralcorp (RAH) and JM Smucker (NYSE:SJM), is set to continue this Thursday with the breakup of Sara Lee into two pure play companies, with one set to focus on meat-centric products and the other to focus on international coffee and tea products. I have compiled a "10 Question & Answers" section for investors curious about the implications of this upcoming spinoff.

When will this separation take place?

"A distribution of the CoffeeCo common stock will be made after the market close on June 28, 2012 to the exchange agent on behalf of the Sara Lee shareholders of record as of the close of business on June 14, 2012 [the record date]."

What is the special dividend that CoffeeCo will be paying?

"Immediately after the distribution of the the CoffeeCo common stock, CoffeeCo will pay a $3.00 per share special dividend." The Sara Lee shareholders of record will receive this dividend.

What happens if you own a fractional share?

If you own a fractional share, it will be sold on the open market and converted to a cash distribution for the shareholder.

What has the IRS said about the tax implications of these actions?

In a private letter ruling, the IRS has signaled that "the distribution of CoffeeCo common stock and certain related transactions will qualify as tax-free to Sara Lee and CoffeeCo shareholders for U.S. federal income tax purposes."

What will CoffeeCo do after this $3.00 dividend is paid?

After the $3.00 dividend is paid, CoffeeCo "will merge with a subsidiary of D.E. Master Blenders 1753 N.V., the ordinary shares of D.E. Master Blenders 1753 will be exchanged for the shares of CoffeeCo common stock and all of the ordinary shares of D.E. Master Blenders 1753 will be distributed to the CoffeeCo shareholders, which are the Sara Lee shareholders of record as of the close of business on the record date … Sara Lee shareholders of record on the record date will receive one ordinary share of D.E. Master Blenders 1753 for each share of Sara Lee common stock they hold."

What will happen to the shares of Sara Lee after the split?

"Immediately after the separation and prior to the market open on June 29, 2012, Sara Lee will effect a 1-for-5 reverse stock split of Sara Lee common stock. As a result, every five shares of Sara Lee common stock will be converted into one share of Sara Lee common stock."

What happens if you own a fractional share?

After the stock split takes place, the fractional share will be sold on the open market and returned as cash to the shareholder.

What will be the new name of Sara Lee's North American business?

Hillshire Brands. It will be listed on the New York Stock Exchange and listed under the symbol HSH.

What brands will be under the Hillshire umbrella?

It will largely be meat-centric products such as "Jimmy Dean, Hillshire Farm, Ball Park, Aidells, Gallo Salame, and State Fair."

Will Sara Lee remain in the S&P 500?

No. On June 28th, Monster Beverage (NASDAQ:MNST) will take its spot in the S&P 500.

All information taken from the following three sources: click here, click here, or click here to access the sourced content.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.