In late June of 2012, famed prepared-foods company Sara Lee International Beverage and Bakery announced that it had finalized the spin-off of its global bakery and beverage businesses. The transaction split the decades-old company into two components: Chicago-based Hillshire Brands Co (NYSE:HSH) and Utrecht, Netherlands-based D.E. Master Blenders 1753. Most of Sara Lee’s North American assets were subsumed into Hillshire Brands. Meanwhile, D.E. absorbed the company’s coffee and tea businesses as well as most of its internationally-marketed brands. In the aftermath of the spin-off, Hillshire Brands has enjoyed consistent stock-price performance.
During its heyday, Sara Lee was regarded as one of the most popular American prepared-foods and baked-goods brands. Although it once owned some peripheral clothing properties, it is principally remembered for its namesake brand of frozen dinners and bakery products. In addition to its namesake, its key American brands included Hillshire Farms packaged meats, Ballpark hot dogs, and Jimmy Dean sausages and breakfast sandwiches. During the half-decade that led up to its breakup, Sara Lee divested from a number of shrinking or unprofitable businesses. Buyers for these divisions included Unilever (ULVR) and Grupo Bimbo (BIMBO).
Hillshire Brands boasts a streamlined portfolio of meat, cake, cheese and sandwich brands. In addition to Sara Lee’s three core meat-focused brands, the company also retained the namesake brand as well as the high-end Chef Pierre label. Its products can be found in supermarkets, big-box stores and warehouse clubs across North America. Hillshire also maintains a thriving wholesaling business that works with major North American food distributors. The company employs nearly 10,000 people and is expected to pull in over $4 billion in revenues in 2013.
D.E. Master Blenders 1753 focuses primarily on the global markets for baked goods as well as coffee, tea and other specialty beverages. The company sells coffee, tea, specialty beverages and baked goods to retailers, wholesalers and end users in over three dozen countries around the world. It also maintains a drink-dispensing division that sells cappuccino and tea machines to affluent private customers. Supermarkets and discount retailers account for the bulk of its sales. D.E. Master Blenders employs about 7,500 people and expects to earn nearly 3 billion euros in 2013.
How the Deal Was Structured
Under the terms of the deal, Sara Lee’s stock underwent a one-for-five reverse split. As of June 27, 2012, all Sara Lee shareholders saw their holdings transform into Hillshire Brands shares and shrink by a factor of five. In addition, each former Sara Lee shareholder received shares in D.E. Master Blenders on a one-to-one basis. The company paid out a concurrent $3 special cash dividend on all D.E. Master Blenders shares.
Since the spin-off, D.E. Master Blenders shares have traded in a narrow range between 8.60 euros and 10 euros per share. Relative to the shares’ pre-deal value of about 8.40 euros, the current closing price of 8.81 euros per share represents a premium of about 5 percent.
Hillshire’s Post-Deal Performance
Hillshire’s re-branded stock debuted on June 28, 2012 at $28 per share. After a brief spike to about $30 per share, the stock tumbled to a low near $24 in early August. Since then, it has remained on a steady uptrend and currently sits at $32.25. Shareholders who held Sara Lee’s (SLE – defunct) stock during the changeover enjoyed an instantaneous arbitrage premium of 10 percent.