SARA LEE CORPORATION
RETRENCHING TO A NARROWER RANGE OF BUSINESSES
SEMINAR #3 SEMINAR #4
4 decades of series of related and unrelated acquisitions. John H Bryan ² 1975-2000 Steven Mcmillan ² 2000-2005 Brenda C.SARA LEE
1939.Branes ² 2005 onwards
.Company·s shares began trading on the New York Stock Exchange.Kenny Company.D. 1946.Originated when Nathan Cummins acquired C. 1956-Consolidated Foods Corporation acquired Kitchens of Sara Lee and 24 Piggly Wiggly supermarkets.
Reduce scope of diversification to smaller number of ´core ´ businesses
Strategic options involve divesting businesses
Having little strategic fit with core businesses Too small to contribute to earnings
resulting in difficulties in profitably managing all the businesses Deteriorating market conditions in a onceattractive industry Lack of strategic or resource fit of a business A business is a cash hog with questionable longterm potential A business is weakly positioned in its industry Businesses that turn out to be ´misfitsµ One or more businesses lack compatibility of values essential to cultural fit
.CONDITIONS THAT MAKE RETRENCHMENT
ATTRACTIVE Diversification efforts have become too broad.
OPTIONS FOR ACCOMPLISHING
Involves finding a company which views the business as a good deal and good fit
Spin it off as independent company
Involves deciding whether or not to retain partial ownership
Involves closing down operations and selling remaining assets A last resort because no buyer can be found
INDUSTRY ATTRACTIVENESSCOMPETITIVE STRENGTH MATRIX
SARA LEE·S RETRENCHMENT INITIATIVES
Estimates $14 bn in fiscal 2010 and operating profit margin of at least 12 percent Expects annual cost savings of between $575 and $ 800 mn $250 mn more for media advertising and promotion and on R & D Hopes to get sufficient cash flows to pay company·s total debt down to between $1.5 and $2 billion by fiscal 2010 First phase of transformation plan ² Exit 7 Businesses
$213 mn business y Several private label coffees y Sold to Italy based group for $ 82.S.5 mn
$ 1.2 Bn business y Global garment producer y Sold it to an affiliate of Sun Capital Partners for $ 115 mn
.NON STRATEGIC BUSINESSES
$ 450 Million Business y Sold cosmetics . household products y Sold to Tupperware Corporation for $ 557 mn
U. skin care products.
.NON STRATEGIC BUSINESSES
European Nuts and Snacks
$ 88 Mn business y Sold it to Pepsico for $ 150 mn
U. Meat Snacks
$ 33 Mn business y Small unit sold for $9 million
$ 1.S.1 Bn business y Sold to Smithfield foods for $ 575 mn
Sara Lee Branded Apparel
$ 4.5 Bn business y Spinned off as an independent company named Hanesbrands Inc.
and a higher income tax rate Strong cash flows from operations allowed to pay down long term debt by $ 106 million.1 million Decrease in net income increased interest expense.SPIN-OFF OF HANESBRANDS
Eroding sales and weak returns Shareholders got 1 share for 8 shares they owned Hanesbrands began independent operations in Sep 2006 In its first 6 months. it announced the closure of 4 plants and 3 distribution centres to create a lower-cost global supply One time dividend paymentof $ 2.
.$188.6 .4 Bn Borrowed $ 2.6 Bn and was in huge debt Got a B+ rating Debt to equity ratio was extraordinarily high Fiscal 2006 . reduced operating profit.$74.
market shares and profitability Objectives (target -2010)
Reach $14 billion 12% operating profit margin Strong focus on consumer. economies of scope
Strategy: Three competitive capabilities
y y y
. competitive pricing & brand-building Category management and leverage through size Operating excellence-lean manufacturing.POST RETRENCHMENT STRATEGY
Attention on growing the sales.Innovative products.
Sara Lee Food & Beverage Division
North American meats brands North American bakery products Senseo single-serving coffee products
Sara Lee Food service Sara Lee International Division(outside North America)
Meat products Bakery products Coffee and tea products
Sales of coffee and tea products Bakery goods Household and baby care brands
6 % (Largest seller Kraft-21% market share) Relative market share: 0.33 (No:2 Pepperidge -5.933 Focus on product innovations & effective promotions Industry Attractiveness Market growth-$91 million in 2003 to $697million in 2006 Sara Lee·s fresh bakery sales Number 1 in the national brand of bread with a 7.SARA LEE FOOD & BEVERAGE Packaged-meat industry
Industry Attractiveness $9.6 billion North American packaged-meat industry Sales of meats in NA improved by 5% Sara Lee·s meat products Market share of 19.2 % market share Relative market share: 1.3 %)
Fresh bakery business
633(weak market position vis-
Industry Attractiveness Low projected growth Market size: approx $75 million Sara Lee·s Frozen Desserts No significant growth Poor customer rating
.SARA LEE FOOD & BEVERAGE
Retail Bread Market
Industry Attractiveness $101 billion market in NA Sara Lee Second largest player(behind Basen) Relative market share: 0.
SARA LEE FOODSERVICE
Food-service industry sales projected to grow from $476 billion in 2006 to $522 billion in2010 SLF held a 9% market share in deli meats sold to food service customers 11% share relevant baked goods 18% share of coffee and tea products
1 market share in Europe Ambi pur third largest brand of air freshner
.SARA LEE INTERNATIONAL
World·s second largest seller of coffee in retail Market share of 9% Bimbo ²number 1 brand in Spain with a 54% market share Packaged bread ²expected to grow by 7-8%
Household and Body Care Kiwi-number one shoe care brand worldwide Global market share of 63% Sanex was number 1 in bath and brand shower products Insecticide-28.