Best bits: Bimbo bolstered, Dean Foods down, Emmi expanding
Grupo Bimbo is to become the US' largest baker with its acquisition of Sara Lee
A message to our US readers: as you eat your lunch today, consider that, according to some estimates, one in three sandwiches made in the US will now be made with bread made by Grupo Bimbo.
The Mexican company is set to become the largest bakery in the US with its US$959m acquisition of Sara Lee's North American fresh bakery business. The division had been described as Sara Lee's "achilles heel", struggling to generate the margins earned by the company's coffee and processed meats operations.
Bimbo chief executive Daniel Servitje, however, last week (9 November) described the deal as a "milestone" for his business, which in two years has secured two significant acquisitions in the US.
In 2008, when Bimbo announced its purchase of George Weston Ltd's fresh bakery business in the US, Servitje said the acquisition was "the most important step" the Mexican group had taken in its history. Bimbo's move for a Sara Lee business that includes the US firm's namesake bread, as well as regional brands like Sunbeam and Rainbo, may not have quite the same gravitas, but, all the same, will give Bimbo brands, production and distribution that will strengthen its position in what is, as US baker Flowers Foods testified last week, a fiercely competitive market.
As for Sara Lee, the deal will allow it to focus on coffee and processed meats but analysts in the US have pointed out that the sale could pave the way for a break-up of the business.
While Bimbo prepares to become the largest baker in the US, the country's largest dairy processor Dean Foods continues to struggle.
Throughout the year, Dean Foods has repeatedly warned investors about the tough trading conditions in the liquid milk sector, the company's key business. Last week, Dean Foods said its third-quarter profits had more than halved, as it faced not just US retailers continuing to cut prices on private-label milk but also rising butterfat costs.
Dean Foods boss Gregg Engles said the company had managed to grow its share of the liquid milk category during the quarter but admitted the "competitive intensity" in the sector had hit its bottom line. Moreover, Engles said the company's volumes were continuing to fall, indicating that shoppers were not just trading down to cheaper milk but also buying less.
The third-quarter results sent Dean Foods' shares to a nine-year low and prompted analysts to ask whether the company might have to sell parts of its business amid concerns over its debt covenants. Questions centred on Dean Foods' WhiteWave-Alpro division, which saw its operating profit rise 10% during the quarter. Engles insisted that "for the time being" WhiteWave-Alpro was "an important value-creating asset" with the Dean Foods portfolio.
A key piece of M&A came within the dairy sector last week - but it did not involve international yoghurt brand Yoplait. Swiss dairy giant Emmi snapped up another yoghurt brand, Onken, from German food giant Dr Oetker.
The deal will give Emmi more clout in two markets - the UK and Germany - central to its seven-year target of adding CHF2bn to the CHF680m in overseas sales the company generated in 2009.
One analyst said Emmi's move for Onken was Emmi's "best foreign transaction for some time" - the company's 2009 move for US cheese maker Roth Käse notwithstanding. However, as we reported on the day the deal was announced, it will not be easy for Emmi in the UK when faced with competition from the likes of Nestle, Danone and Muller.
For Oetker, the deal means it will stop selling chilled desserts in the UK, although it remains committed to the category in other markets like Germany, France and Italy. In the UK, Oetker will pay more attention to home baking and pizza, which will likely cause concern at one of the company's key rivals in pizza. As we saw last week, Oetker pizza rival Northern Foods is struggling to drive sales of its own pizza brand, Goodfella's.
That said, the Yoplait rumour mill did still rumble on. Private-equity firm PAI Partners, which wants to sell its 50% stake in Yoplait, said its shares would formally go on sale "in the next few days".
PAI chairman and CEO Lionel Zinsou said there had already been "a good deal of interest" in his firm's stake in Yoplait but did not reveal the names of the suitors. Meanwhile, Yoplait's chief executive Lucien Fa told Reuters that a new investor in the business would need to have the clout to expand the business worldwide, where the company is "relatively weaker" than Danone.
The speculation around Yoplait's future started during the summer. It will run for a few months yet.
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