Wall Street appears to be reacting favorably to the announcement Thursday that Sara Lee Corporation will spin off its branded apparel division and other units. Combined, businesses represent about 40% ($8.2 billion) of the companys revenues, and focus on its core food businesses. The remaining business, which will generate $11 billion in sales versus the current $20 billion business, is expected to deliver operating profit at about the same level as the current total company.
SLE shares were up 1.1% for the week to close at $23.57 on Friday.
The company hopes that the spin-off of the U.S. Branded Apparel group, which includes the Champion and Duofold businesses as well as the Hanes, Playtex, and Bali brands, will net another big win like the spin-off of Coach, Inc. in October 2000. Since the spin-off, Coach investors have netted a 10x gain. The apparel group, which generated $4.5 billion in sales in 2004, is expected to become an independent public company.
“We would be delighted if our apparel business did exactly what Coach did,” said SLE chairman Steve McMillan on a conference call with the media, analysts, and investors. He also hedged a bit, stating they would entertain a buy-out if the right deal came along.
“The apparel business decision is exactly the same we followed with Coach,” he said on the call. “But it’s entirely possible that someone could come in and offer to buy. We saw that as a high likelihood with Coach too.”
McMillan said they opted for a spin-off over a direct sale because it creates a tax-free event for shareholders. He said that any direct sale would need to include a premium to pay the taxes. For a direct sale to be viable, it would also need to create greater value for shareholders.
The European Branded Apparel business will be sold off as a separate transaction.
Management reported that Champion sales grew 39% in the first half of the year, due in large part to its move into Target with the C9 line last year. They said the program is “just beginning to gather the kind of momentum” they believe that it will ultimately have.
Richard Noll, who has been credited with a very successful turnaround in SLEs bakery business, has been appointed president and COO of the Branded Apparel business. He is also said to have a “phenomenal track record running apparel businesses.”
>>> What a shame that SLE never realized the synergies available to them with the combination of fleece, sports bras, baked goods, and meat. Maybe an apple crumb cake GWP with a Champion Jog Bra would have worked
So close…
