On Friday, Sara Lee announced that it will sell its international personal-care business to Unilever for just under $1.9 billion in cash, a deal valued at 1.7 times trailing-12-month sales and 10 times trailing-12-month earnings before interest, taxes, depreciation, and amortisation. While this acquisition will not move the needle on our fair value estimate for Unilever (as it represents less than 2% of the firm’s sales), we are placing Sara Lee under review to assess the impact of the transaction, given that the segment represents around 8% of its consolidated sales and about 19% of its consolidated operating profit.
Because Sara Lee has been exploring strategic options since March 2009 for its international household and body-care business, a segment that generates about 16% of the firm's sales and 34% of its operating profit, the announcement is not overly surprising to us. We now believe that a sale of its international household segment is imminent as well. Although this deal will enable Sara Lee to concentrate exclusively on its global food and beverage business, we aren't convinced that getting rid of the profitable body-care portfolio will ultimately enable the firm to generate consistent sales and operating profit growth, which has been Sara Lee's Achilles' heel over the past several years. Further, we believe it is likely that Sara Lee will cut its dividend following the closing of the deal in 2010, given the amount of profits and cash the international personal-care segment contributed to the firm.
Erin Swanson is a Morningstar stock analyst based in the United States.