DealZone

Everybody Likes Cake

September 25, 2009

More big consumer brands are being dealt across the Atlantic. With Kraft’s bid for Cadbury churning, consumer goods giant Unilever plans to pay 1.275 billion euros ($1.87 billion) for a chunk of Sara Lee’s personal care brands, helping the cake maker sheds non-core businesses to focus on food. Sara Lee shareholders are sweet on the deal – bidding the stock up more than 9 percent in early trade. In a space reserved for winners and losers, this deal looks like it has natural benefits for both parties.

The asset sale is quite a bit less rich than the chocolate deal, which is for the whole of Cadbury rather than just its brands, the soap business brings with it a fresh scent of a recovery in deals activity. It is the first major acquisition for the Anglo-Dutch company’s new Chief Executive Paul Polman, and Sara Lee’s CEO Brenda Barnes is still only half-way through her business-shedding exercise.

Credit Suisse analyst Charlie Mills said the price Unilever is paying of 10 times core operating profit, or EBITDA, is not huge by industry standards, reflecting the fairly disparate collection of assets. Brylcream hair gel is part of the mix.

“We’re not convinced that this is the greatest collection of assets but another acquisition shows Unilever still moving from the back foot (cost cutting and disposals) to the front foot (volume growth and acquisitions),” he said. It may also be worth remembering that the deal speaks to Unilever’s business. It is built on brands, whereas Sara Lee is a brand unto itself.

So far as markets are concerned, Sara Lee is the winner here. Having been able to find a buyer for a huge chunk of assets it had on the block, it is now going to be able to buy back more stock and preserve its 11-cent quarterly dividend.

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