Sara Lee Considering JBS Buyout - Analyst Blog

Illinois-based Sara Lee Corp. (SLE) may itself to JBS -- a Brazilian company and the world's largest beef producer -- for over US$10 billion.

Although, JBS had approached Sara Lee a few months earlier, the company has been seriously considering the offer of late. The acquisition is expected to provide JBS with a strong foot-hold in the U.S. food production industry. Further, through this deal JBS would become a new competitor for Tyson Foods, Inc. (TSN), which is currently the only meat company in the U.S. that produces beef, chicken and pork.

After the resignation of Sara Lee's Chairman and Chief Executive Officer Brenda Barnes, a question on the company's existence going forward started from the time it has agreed to sell its North American bakery business to Mexico's Grupo Bimbo for $925 million, which was completed in early December.

In November 2010, Sara Lee divested its body care and European detergents business to Unilever NV (UL). In the meantime, Sara Lee also agreed to acquire Brazilian coffee company Cafe Damasco for US$60 million in late November to expand its leading position in Brazil.

JBS initially established itself in the U.S. through its acquisition of meatpacker Swift & Co. in 2007. This deal made JBS the world's largest beef producer. JBS is the third Brazilian company intending to acquire an iconic American business. Earlier, in 2008, Brazilian brewing company InBev acquired Anheuser-Busch Cos. Inc. This was followed by another Brazilian private-equity firm, 3G Capital, which acquired Burger King Holdings.

Sara Lee reported earnings of 13 cents in the first quarter of 2011, which was well below the Zacks Consensus Estimate of 18 cents a share and also declined 23.5% versus prior-year's earnings of 17 cents a share. Profits were primarily impacted by higher commodity costs and increased marketing spending.

Moreover, revenues were also down by 0.5% to $2.6 billion, as lower unit volumes and unfavorable foreign currency translation fully offset the benefit of favorable shift in sales and higher prices.

Sara lee primarily competes with ConAgra Foods (CAG), H.J. Heinz Company (HNZ) and Campbell Soup Company (CPB) and currently hold a Zacks Rank#3 which translates to short-term ‘Hold' recommendation.