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Sara Lee buys Earthgrains
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July 2, 2001: 1:53 p.m. ET
$2.8B deal for nation's second-largest baker represents 55% premium
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NEW YORK (CNNfn) - Sara Lee Corp. is buying Earthgrains Co. in a $2.8 billion deal, including debt, for the nation's second-largest packaged bread and bakery manufacturer.
Under terms of the deal announced Monday, Sara Lee will pay $40.25 cash for each Earthgrains (EGR: up $13.82 to $39.82, Research, Estimates) share, a premium of 55 percent over Friday's closing price of $26. Shares of Earthgrains shot up to close to the announced purchase price in morning trading following the announcement.
Based on Earthgrains' shares outstanding, the purchase price comes to $1.79 billion. Sara Lee also will assume Earthgrains' debt to bring the deal to its stated $2.8 billion value.
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 Steven McMillan, CEO of Sara Lee Corp., chats with CNNfn about the deal. |
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Shares of Sara Lee (SLE: up $0.55 to $19.49, Research, Estimates) , a diversified manufacturer of food products and apparel, slipped slightly in morning trading Monday.
Earthgrains, which sells in the United States under the brand names Earth Grains, IronKids, Grant's Farm and Colonial, has about 30 percent of its sales in the premium and "super-premium" bread categories, according to Sara Lee. During its fiscal year ended March 27, it had sales of $2.6 billion. It also has a growing business in Europe.
It is second in the nation in sales to Interstate Bakeries Corp. (IBC: Research, Estimates), the maker of Wonder and Hostess products. Sara Lee said Earthgrains is the leader in fresh bread sales in its 34-state home sales territory.
Sara Lee said a key advantage of the deal is acquisition of one of the food industry's pre-eminent direct-store distribution systems, comprised of 4,900 company-owned routes. It said combining Earthgrains' routes with its own will give it direct-store distribution capable of reaching 61 percent of the nation's population.
The deal is expected to close in 30 to 60 days. Sara Lee said that, including Earthgrains, it now expects to earn $1.30 to $1.40 a share for fiscal year 2002, which ends next June. Analysts surveyed by earnings tracker First Call now forecast full-year earnings of $1.30 for Chicago-based Sara Lee, whose products include not only the Sara Lee brand but Hillshire Farm sausage and Hanes underwear.
The company said that the acquisition is expected to add 4 cents a share to earnings from operations in the first year, but to reduce reported earnings by 3 cents a share due to amortization of goodwill, which is not normally included in earnings forecasts. It said that following this current fiscal year it expects the deal to add to both operating and reported earnings.
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In a separate announcement Monday Earthgrains said it expects to beat analysts' earnings per share forecasts for its 12-week fiscal first quarter, ended June 19. The company said its EPS will come in at 34 cents, above both the First Call forecast of 28 cents and the 27 cents it earned in the year-ago period.
The company pointed to strong sales of its refrigerated dough business and hitting profit margin goals despite higher energy costs for the better-than-expected results. 
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Sara Lee
Earthgrains
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