Anglo-Dutch consumer giant Unilever Plc is acquiring the global body care and European detergents businesses of US-based Sara Lee Corp. in a cash deal worth E1.275 bn ($1.88 bn), or 1.7x annual sales. The proposed transaction is expected to be closed during CY2010.
The global body care and European detergents businesses encompass a wide variety of popular brands such as Bath & shower, deodorants, baby care, men's toiletries and oral care brands like Sanex, Duschdas, Radox, Zwitsal, Brylcreem, Prodent and Zendium. Sara Lee's divested asset is a strategic fit for Unilever Plc, strengthening the later against competitors such as Reckitt Benckiser Plc from Britain, Wisconsin-based cleaning products maker S.C. Johnson & Son Inc. and New York-based consumer products maker Colgate-Palmolive Co.
Sara Lee (SLE) which acquired 46 companies during 1997-2000 has been on divesting mode since then. During 2001-2008, Sara Lee divested 33 companies as against 11 acquisitions. Since 2005, Sara Lee has been spinning off or selling slower-growth businesses, with an aim to focus on its core food and beverage business.
Sara Lee has also received significant interest in the remainder of its household business and is continuing to pursue divestiture options for this business, including non-European cleaning brands. The business, which is not included in the proposed transaction, includes the Ambi Pur air care brand, Kiwi shoe care, Ridsect insecticides and White King bleach brands.
Sara Lee's stock traded around $24.7 way back in 2005 but since then it has been coming down, gaining intermittently only to fall back once again. The decline in stock price could be attributed to the company's declining margins. The operating margin and net margin were showing a declining trend since FY2005. The operating margin came down from 8.5% in FY2005 to 2.0% in FY2008, which indicates that the company has not been able to manage its cost structure efficiently. A proportionate decline is reflected in the net profit margin as well, net profit margins came down to -0.6% in 2008 from 6.5% in FY2005.
The company has figured out that, in order to boost its margins and thereby its stock price, it needs to divest non-core and focus on core. The company's board of directors is also aware that they need to prop-up the stock price through other initiatives before their strategic actions yield expected results. And so, the board of directors has also authorized a $1.0 billion share buybak, in addition to the 13.5 million authorization, or about $150 million based on the recent market price, remaining under the previous share buyback program. The company further said it intends to maintain the current quarterly dividend of $0.11 for the next four quarters, regardless of the timing of dispositions. Sara Lee also said it intends to maintain a credit profile consistent with a strong investment grade credit rating. In the next two to three quarters Sara Lee could once again win investors' confidence if its strategic initiatives pan-out as intended.
