Sara Lee Sells Foodservice-Coffee Operations to Smucker

By Mia Lamar

The Wall Street Journal

October 24, 2011

Sara Lee Corp. has sold the majority of its North American foodservice coffee and tea operations to J.M. Smucker Co. for $350 million in cash, continuing a slimming-down effort at the packaged-foods company.

Sara Lee has worked in recent months to sell off businesses and narrow its focus. The company is currently in the process of splitting apart, separating into an international coffee and tea business and a North American business that includes the Jimmy Dean and Hillshire Farms brands.

"Our decision to sell a major part of this business to Smucker is an example of Sara Lee Coffee and Tea's renewed focus on sustainable, profitable growth and part of our mandate to create the strongest possible pure-play company," said Executive Chairman Jan Bennink. The deal is expected to close in the beginning of next year.

Also Monday, Sara Lee said that its Senseo coffee business in North America will be discontinued as of March 31, 2012, with the exception of select online channels. Sara Lee plans to sell or close the remaining assets of the North American coffee business.

The North American foodservice beverage business currently employs about 690 people and generated net sales of approximately $530 million in fiscal 2011, of which approximately $285 million was associated with the assets sold to Smucker. The companies anticipate about 450 people will transfer to Smucker following execution of the agreement.

In addition to the sale, Sara Lee and Smucker have struck a licensing agreement to together develop liquid coffee technologies. As a result of the agreement, Sara Lee said it will receive a 10-year income stream totaling approximately $50 million, plus growth-related royalties, which will help cover its research and development and other support expenses.

Smucker's coffee business, which features brands like Folgers, is its largest by sales. In a statement, Smucker Chief Executive Richard Smucker said the agreement would further strengthen the company's position in the North American coffee market.

"The addition of liquid coffee concentrate to the Smucker portfolio aligns with our desire to compete in all forms of coffee, adding to our roast and ground, single serve, instant, and ready-to-drink platforms," Smucker said.

Like many other food makers, Sara Lee has lately faced a slew of economic headwinds, including shaky consumer mood and rising commodity costs. Fiscal fourth-quarter earnings slid 41%, though core earnings came in line with analyst expectations, amid continued cost pressure on its bottom line.