Sara Lee Divides Into Two Companies

Sara Lee’s North American Retail and North American Foodservice businesses are expected to be one entity while its International Beverage and Bakery businesses and North American beverage business are set to comprise another.

Sara Lee Corp. is dividing into two separate publicly traded companies, in a move planned for completion in early 2012, after the board of directors agreed, in principle, on the decision.

Under the plan, Sara Lee’s North American Retail and North American Foodservice businesses (excluding the North American beverage business) is being spun off, tax-free, into a new public company that retains the “Sara Lee” name. Its leading brands will include Sara Lee, Jimmy Dean, Ball Park, Hillshire Farm, Chef Pierre and State Fair. The new company has reported approximately $4.1 billion in revenue in fiscal 2010.

The other company, which has yet to be named, is expected to consist of Sara Lee’s current International Beverage and Bakery businesses, as well as the North American beverage business. Its leading brands will include Douwe Egberts, Senseo, Pickwick, Maison du Cafe, L’OR, Cafe Pilao, Marcilla and Bimbo. This entity would have reported approximately $4.6 billion in revenue in fiscal 2010.

Each company is projected to have an investment grade credit profile, a competitive dividend yield, a corporate tax rate of approximately 35% and future financial flexibility with a targeted gross leverage of 2.0x EBITDA.

In conjunction with the planned separation, the board of directors intends to declare a $3.00 per share special dividend on the company’s common stock, the majority of which will be funded with proceeds from the sale of the company’s North American Fresh Bakery business. The special dividend is expected to be declared and paid in fiscal 2012 and before completion of the spin-off of Sara Lee’s North American Retail and North American Foodservice businesses.

“Today’s announcement is a logical step following the divestment of our International Household and Body Care business and the announced sale of our North American Fresh Bakery business,” said James Crown, Sara Lee Corp.’s chairman of the board. “We have carefully considered various strategic alternatives, including unsolicited indications of interest in the company. We believe that the spin-off, plus the one-time special dividend, offers the greatest potential for delivering long-term shareholder value. These two pure-play companies will have their own distinct growth strategies within their respective core markets that will attract a more focused shareholder base.”

Crown added, “On behalf of the board of directors, I would like to thank the management team and our employees worldwide for their tremendous support of our business and helping shape the long-term strategic plans for Sara Lee.”

In February 2010, Sara Lee Corp. announced a revised capital plan with intent to repurchase between $2.5 and $3.0 billion of stock. The company repurchased $500 million of shares in fiscal year 2010, $765 million of shares to date in fiscal 2011 and intends to repurchase an additional $535 million of stock in the remainder of this fiscal year, for a cumulative total of $1.8 billion through the end of fiscal 2011. After payment of the $3.00 special dividend in fiscal 2012, the company will have returned a total of $3.5 billion of capital to its shareholders since the revised capital plan was announced, and, at this time, does not expect to continue with further share repurchases through the completion of the spin-off. The company expects to maintain its quarterly dividend through the completion of the separation process.

The company is developing detailed implementation plans for the spin-off and will continue to evaluate a variety of methods to enhance the efficiency of the operating structure of the two companies. Sara Lee will consult with relevant works councils during the process. The separation plan will also be subject to final approval by the board of directors, other customary approvals and the receipt of an IRS tax ruling. Further details will be disclosed at a later date.

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