Corporate Restructuring: Sara Lee Reconfigures To Go Global

Sara Lee Corp. is one of the few survivors of an age in which large companies sold both food and other consumer products out of the same corporate house. Procter & Gamble Co., the Anglo-Dutch Unilever complex, and British-based Reckitt Benckiser PLC are some of the consumer-oriented firms still practicing product diversity. Interestingly, these firms have been in a restructuring mode with both P&G and Unilever culling out their smaller, more mature, slower growing brands and looking for acquisitions of consumer businesses with leadership positions. Now Sara Lee is joining the restructuring movement. While the Chicago-based company – which has built a wide-ranging stable of brand powerhouses through a two-decade acquisition drive – will retain a diversified mix, it will cut back its strategic focus to concentrate on a smaller number of businesses. The game plan, as outlined by president and CEO C. Steve McMillan, is to key on packaged foods and beverages, household products, and underwear that can be sold globally and take No. 1 or No. 2 market positions. Initially, the shake-up has made four businesses expendable. Two will be taken public – Coach, the famous leather goods producer, and PYA/Monarch, the nation’s fourth largest foodservice distributor and a founding unit of Sara Lee prior to its acquisition-laced diversification. The company also has put on the block its well-known Champion brand of athletic apparel and the International Fabrics division of recently acquired Courtaulds PLC, a British-based apparel concern. As with many companies pursuing bold restructurings, Sara Lee is responding to a sagging stock price. However, there was hardly any immediate kick from the announcement issued on May 30. The stock was up fractionally that day on the New York Stock Exchange and closed at 18 on May 31, well off the 52-week high of 27-1/2. McMillan said that the restructuring “allows us to preserve the benefits of diversification while improving the consistency and sustainability of our company’s growth prospects and performance over the long term.” Under that approach, the company’s principal war-horses will be such products as Sara Lee baked goods, Hillshire Farms meats, Chock Full O’Nuts coffee, Hanes underwear, Playtex undergarments, and Kiwi shoe polish. The exit choices for the four businesses to be shed reflect the characteristics of the operations and their markets. The initial belief is that both Coach, a $550 million-a-year producer of upscale leather products, and PYA/Monarch, with annual sales of $2.7 billion and operations primarily in the Southeast, can stand on their own as independent public companies. Sara Lee plans to sell partial interests in both companies and then spin the remainder off to its own shareholders, although the company suggested that it could entertain acquisition offers. The other two businesses are better suited to divestiture. International Fabrics, a maker of components for underwear and intimate apparel, is a poor fit for a consumer products company and operates in a low-margin, consolidating field. Champion, despite a well-known name, operates in a fragmented industry and is likely to be more valuable as part of an apparel company or under ownership of an LBO firm than as an independent firm. Other restructuring developments: Western Resources Inc. – The Topeka, Kansas-based company, while still planning to split its utility business from its 85%-owned Protection One Inc. security business, reassessed its initial plan for a straight spin-off of the electric and gas operations and hired Salomon Smith Barney and Chase Securities to check out alternatives. The company said it was concerned that the utility operations, consisting of Kansas Power & Light and Kansas Gas & Electric, were not large enough to make it as an independent business in the rapidly restructuring utility industry. The bankers were helping to determine whether the utility operations should be sold, merged, or partnered with other utilities to achieve needed mass. J.C. Penney Co. – Directors of the big retailer gave management the go-ahead to look for a buyer or joint venture partner for its insurance and membership services subsidiary, Direct Marketing Inc. Proceeds of a sale would be earmarked for cutting debt of the Plano, Texas-based firm. Sybron International Corp. – The Milwaukee-headquartered firm will split in two by spinning off its dental products unit, Sybron Dental Specialties Inc., in a tax-free deal. Sybron, to be renamed Apogent Technologies, will retain its laboratory products business. CEO Kenneth F. Yontz said that the two businesses had “quite different dynamics.” Applied Digital Solutions Inc. – The provider of e-business solutions based in Palm Beach, Fla., retained Prudential Securities to help determine what to do with its Intellesale.com Inc. unit, a discount seller of computer equipment. Initially, the parent planned to take Intellesale.com public. U.S. Industries Inc. – The building products company may be parting with its Lighting Corp. of America subsidiary, the fourth-largest manufacturer of lighting fixtures in North America. U.S. Industries, based in Iselin, N.J., retained Compass Partners International to handle a sale or review other alternatives. Universal Foods Corp. – The Milwaukee-based company, which has focused on expanding its colorings and flavorings business in recent years, appears ready to shed its Red Star Yeast and Products division, a onetime mainstay. Salomon Smith Barney is reviewing the alternatives for the unit, which has annual sales of about $140 million.