Saturday, December 18, 2010

Brazilian giant to snap up American business icon Sara Lee

According to WSJ, Sarah Lee is being pursued by JBS in the latest example of cash-rich emerging-market companies seeking to snap up American business icons, Brazilian meat-processing giant JBS SA is pursuing a takeover of Sara Lee Corp., said people familiar with
the matter.

Sao Paulo-based JBS approached Sara Lee, and the talks have been on and off over several months, these people said. In recent weeks, Sara Lee has been considering JBS's offer more seriously, they added. 
The interest of JBS shows the rise of Brazilian companies on the world stage. Once isolated, they've moved aggressively into the U.S., most famously with InBev's $46.3 billion takeover of Anheuser-Busch Cos. Inc. in 2008. This year, Brazilian buyout firm 3G Capital acquired Burger King Holdings for $3.3 billion.
For companies across South America and Asia, U.S. acquisition targets bring both prestige and turnaround opportunities. Bankrolled by dominant positions in their home markets and using strong local currencies, these companies now have the wherewithal to consider once-unthinkable deal combinations.
Companies in China, India, Brazil and the Middle East have collectively spent more than $135
billion in the past five years on their 50 top acquisitions in the U.S.
JBS started as a butcher shop in the Brazilian state of Goias in the 1950s, which the founding Batista family later expanded into one of the first slaughterhouses in the Brasilia region. In the 1990s, the family went on an acquisition binge, acquiring 12 meat-processing companies as
Brazil's economy expanded.
Sara Lee, founded in 1939, has wrestled for years with weak stock performance and its strategic direction, at different points owning a lingerie business, Coach leather goods, Hanes underwear and Kiwi shoe polish. In the past decade, it's trimmed down these businesses and is focused almost entirely on coffee and meat processing. It now carries a market capitalization of $11 billion. Sara Lee jumped 5.3% late Friday to $17.26 per share, after The Wall Street Journal reported the discussions.
No final decision has been made on a JBS-Sara Lee tie-up, these people cautioned, and Sara Lee may decide against a sale. JBS has a market capitalization nearly equal to Sara Lee, which could make it challenging to finance a full takeover offer.
Sara Lee chief executive Brenda Barnes, appointed in 2005, appeared to be stabilizing the company in recent years. Yet when she suffered a stroke and stepped down this summer, the company's future again came into doubt. While the board has searched for a successor, it has also weighed its strategic options. Its CEO search has been delayed as it decides what to do next, said people familiar with the matter.
Among other possibilities: The company is considering breaking up its core meats and beverages businesses and putting each up for sale or spinning one off, the people said.
JBS didn't return requests for comment. Sara Lee declined to comment. J.P. Morgan Chase & Co. is advising JBS and Bank of America Merrill Lynch is advising Sara Lee, according to people familiar with the matter.
JBS, one of the world's largest meat processors, has been expanding globally since 2005. In 2007, it acquired U.S. meatpacker Swift & Co. for $225 million and assumed $1.23 billion of its debt, and followed it up a year later with the acquisition of Smithfield Beef from Smithfield Foods. In 2009, it struck a deal to buy a majority stake in U.S. chicken producer Pilgrim's Pride out of bankruptcy court for about $2.8 billion.
In 2009, JBS had more than $20 billion in annual revenue from beef, pork, poultry and dairy products, as well as marketing of leather goods, pet products and bio-diesel. Its U.S. subsidiary, based in Greeley, Colo., has about $10 billion in annual sales. JBS, which has been planning a public offering of its U.S. unit, has seen its shares slide more than 30% this year, hurt partly by increases in cattle prices and a better-performing Brazilian real.
Sara Lee had earlier received a takeover approach from private-equity giant Kohlberg Kravis & Roberts & Co., which it rebuffed, according to people familiar with the matter.
A sale to private equity could still be on the table, but is seen as less viable because of the difficulties financing such a large deal.
Among Sara Lee's most attractive assets are its coffee business, with revenue of $3 billion and 18% operating margins. It has growing brands in western Europe and Brazil.
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