Sara Lee buyout could pave way for JBS deal-BofA

Funds could buy all of Sara Lee, then break it up

* Break-up could allow JBS to bid for Sara Lee meat unit * Analysis sees greater returns from leveraged buyout * Reports of funds-led bid sprung in recent days By Guillermo Parra-Bernal

SAO PAULO, Jan 13 (Reuters) - A leveraged buyout of Sara Lee Corp (SLE.N) could pave the way for Brazilian beef processor JBS SA to buy the U.S. company's meat division, analysts at Bank of America Merrill Lynch said in a report on Thursday. The return on a potential LBO of Sara Lee could rise significantly if buyout firms bought the entire company and then sold its meat business to a strategic investor, as recently speculated in the media, the analysts said. JBS could pay about $4 billion for Sara Lee's meat division, they added. Private equity firms have pursued Sao Paulo-based JBS (JBSS3.SA), the world's biggest beef processor by revenue, since reports about a potential bid for Sara Lee arose late last year, a source with knowledge of the situation told Reuters on Tuesday. [ID:nN11140686] "We think if this were to happen, JBS could bid for Sara Lee's meat division, as such an acquisition would be more feasible in size ... and they would presumably not need to sell the coffee business afterward," wrote Merrill Lynch analysts Fernando Ferreira and Isabella Simonato in the report. Ferreira and Simonato's remarks come after DealReporter said on Wednesday that a group of buyout firms led by Apollo Global Management [APOLO.UL] could bid for Sara Lee as early as this week, with a price in the range of $18.75 to $19 a share. Spokespeople for JBS and Apollo declined to comment when sought out by Reuters. Sara Lee shares were up 10 cents to $18.28 in afternoon New York Stock Exchange dealings. Integrating JBS's U.S. unit and Sara Lee's coffee and meat processing business could create value by providing a home for the trimmings of JBS's cattle and pig slaughtering operations. The deal could also help JBS boost its presence in processed foods, making profit margins more stable. JBS could further gain by reducing its reliance on commodities and turning into a key supplier of meats to rival food processors. Sara Lee, which has a range of businesses that include beverages, coffee and retail units, is valued around $12.5 billion by a number of analysts. Bank of America Merrill Lynch analysts Bryan Spillane and Mariya Goub said in a separate report that if a group of buyout firms were able to acquire all of Sara Lee and then "simultaneously sell the meat assets to a strategic buyer, the cash proceeds could potentially enable a private equity buyer to quickly recoup a portion" of the money used for the purchase.

Investors reckon that whether Sara Lee ends up in Brazilian hands comes down to two potential deal-killers: funding and time. JBS is significantly leveraged following more than a dozen takeovers since 2007. The purchases have catapulted the company into the big leagues as the world's top beef producer, but left it relatively short of cash. The source told Reuters that funding would not necessarily drag down the deal. But Ferreira and Simonato warned that financing would be a key part of any bid and that funding from Brazil's state development bank BNDES remains a "wildcard." Both analysts also said JBS shares, which fell about one-third in the past year, should remain under pressure because of the potential deal. Shares of JBS were down 1 percent to 7.05 reais in Sao Paulo near the close of day on Thursday, compared with a drop of 1.1 percent in the Bovespa stock index .BVSP. (Reporting by Guillermo Parra-Bernal, editing by Gerald E. McCormick)

JBS stock falls on concern over Sara Lee bid

Such a bid would value Sara Lee at about $13.4 billion, based on the shares outstanding for the company at the end of its most recently reported quarter. JBS is valued at $10.5 billion, prompting analysts to say that a flurry of bond and share sales is on the works to fund the Sara Lee deal. The JBS-led consortium, which includes buyout giant Blackstone Group (BX.N), has already lined up financing and could tap other sources to raise the funds to buy Sara Lee, Reuters reported last week, citing a source with direct knowledge of the situation.

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Sara Lee break-up draws nearer

By Helen Thomas in New York and Joe Leahy in So Paulo Published: January 28 2011 00:33 | Last updated: January 28 2011 22:30 Sara Lee looks set to push ahead with a separation of its two key businesses, after an informal process to sell the company failed to generate an offer its board found compelling. The company, which houses a meat products division and a beverages business, has been preparing for a split of the company for several weeks, while also assessing interest from potential buyers.

HISTORY OF DEAL
Sara Lee to spin off N American food business - Jan-28 Private equity takes joint approach on bids - Jan-26 In depth: Private equity - Mar-14 Sara Lee considers splitting into two - Jan-06 European regulators probe Sara Lee deal - Dec-23 Sara Lee offloads Kiwi polish unit for 245m - Jan-04 As the Sara Lee board met on Thursday, however, neither a consortium led by Apollo Management, nor a group fronted by Brazilian protein producer JBS, had made an offer the board was likely to accept, people familiar with the matter said. Sara Lee has told potential buyers that it would only consider selling the entire company for more than $20 a share, or approaching $12.8bn. Sara Lee shares fell 4.75 per cent on Thursday to $17.64. Sara Lee declined to comment. A private equity consortium of Apollo Global Management, TPG and Bain was rebuffed after last week making an approach at close to $19 a share. The groups decided it was difficult to justify offering a price above $20 a share for Sara Lee, people close to the situation said. JBS, meanwhile, has been talking to Blackstone about selling Sara Lees European coffee business to the private equity group after the deal. However, the Brazilian group has been struggling to put together financing for an offer, said people familiar with the matter. JBSs debt levels have increased dramatically over the past two years, as the acquisitive Brazilian group has set its sights on expansion abroad. JBS on Thursday said in a regulatory filing in Brazil that it had not entered into any agreements that would trigger the need for disclosure to the market. Sara Lee said it would update shareholders on Friday on strategic initiatives, which could include plans to pursue a tax-free spin of its beverages business. Its plans could yet change, people close to the matter warned. The company could entertain new interest, or consider an improved offer from one of its suitors, even after it embarks upon a split. Sara Lee has been streamlining its business in recent years. It last year sold its North America bakery business to Grupo Bimbo of Mexico for almost $1bn and in 2009 shed its personal care business in a sale to Unilever. A year ago, Sara Lees shares were trading at close to $12, before bid speculation began to engulf the company.

Analysts have put the companys break-up value at close to $17 a share. A number of companies have recently chosen to separate disparate business lines in a bid to realise value for shareholders. Fortune Brands in December opted to separate its golf, housing products and spirits business. ITT, the US industrial company, said earlier this month that it would divide its defence, water and industrial products units. Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.