Sara Lee may split up

After rejecting 2 high-stakes bids, the company reportedly decides to pursue its own future by breaking itself up.

By Kim Peterson Jan 27, 2011 3:22PM
Credit: © Paul Sakuma/AP
Caption: Sara Lee pies on displaySara Lee (SLE) has spurned two suitors and is now looking into splitting up its meat and coffee businesses, Reuters reported today.

The company has been a hot prospect lately, receiving takeover bids from two teams. One investor group decided to drop the pursuit after seeing its $13 billion bid rejected, Reuters reported. The other team is having a hard time lining up more money.

Now it sounds like Sara Lee is going to go down its own road. Is this a legitimate decision, or is the company simply spinning this to juice up the bidding process? Perhaps a bit of both. Surely Sara Lee's board will entertain higher offers, but at the same time, it's exploring other strategies.

Investors pooh-poohed the latest news, sending Sara Lee shares down 5% to $17.60 in afternoon trading.

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A split-up is "not very satisfying to those folks," one portfolio manager told Reuters. Sara Lee is "in the throes of a lot of speculators right now, hoping that someone will come along and save it," he added.

Sara Lee owns a diverse product line, including Ball Park hot dogs and Jimmy Dean breakfast foods. But the company's beverage unit may be the most attractive to outside investors, one analyst told Bloomberg. Senseo is one of Sara Lee's coffee brands.

"You have good, stable brands and abundant cash flow," the analyst added. "It would scream pretty favorably from a private-equity perspective." A leveraged buyout of Sara Lee -- at least with the numbers being passed around -- would have been the largest the industry has seen in a decade, Bloomberg calculated.

One advantage to a spin-off is that it would be tax-free, Reuters reported. After the spin-off, buyers could just purchase the stock from shareholders.

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