SARA LEE CORPORATION:

RETRENCHING TO A NARROWER RANGE OF BUSINESSES

SEMINAR #3SEMINAR #4

SARA LEE

1939- Originated when Nathan Cummins acquired C.D.Kenny Company.

1946- Company’s shares began trading on the New York Stock Exchange.

1956-Consolidated Foods Corporation acquired Kitchens of Sara Lee and 24 Piggly Wiggly supermarkets.

4 decades of series of related and unrelated acquisitions.

John H Bryan – 1975-2000 Steven Mcmillan – 2000-2005 Brenda C.Branes – 2005 onwards

RETRENCHMENT STRATEGIES

Objective

Reduce scope of diversification to smaller number of “core “ businesses

Strategic options involve divesting businesses

Having little strategic fit with core businesses

Too small to contribute to earnings

CONDITIONS THAT MAKE RETRENCHMENT ATTRACTIVE

Diversification efforts have become too broad, resulting in difficulties in profitably managing all the businesses

Deteriorating market conditions in a once-attractive industry

Lack of strategic or resource fit of a business A business is a cash hog with questionable

long-term potential A business is weakly positioned in its industry Businesses that turn out to be “misfits” One or more businesses lack compatibility of

values essential to cultural fit

OPTIONS FOR ACCOMPLISHING DIVESTITURE Sell it

Involves finding a company which views the business as a good deal and good fit

Spin it off as independent company

Involves deciding whether or not to retain partial ownership

Liquidation

Involves closing down operations and selling remaining assets

A last resort because no buyer can be found

INDUSTRY ATTRACTIVENESS-COMPETITIVE STRENGTH MATRIX

SARA LEE’S RETRENCHMENT INITIATIVES

Estimates $14 bn in fiscal 2010 and operating profit margin of at least 12 percent

Expects annual cost savings of between $575 and $ 800 mn

$250 mn more for media advertising and promotion and on R & D

Hopes to get sufficient cash flows to pay company’s total debt down to between $1.5 and $2 billion by fiscal 2010

First phase of transformation plan – Exit 7 Businesses

NON STRATEGIC BUSINESSES

Direct Selling $ 450 Million Business Sold cosmetics , skin care products, household

products Sold to Tupperware Corporation for $ 557 mn

U.S. Retail Coffee $213 mn business Several private label coffees Sold to Italy based group for $ 82.5 mn

European Apparel $ 1.2 Bn business Global garment producer Sold it to an affiliate of Sun Capital Partners for $

115 mn

NON STRATEGIC BUSINESSES

European Nuts and Snacks $ 88 Mn business Sold it to Pepsico for $ 150 mn

U.S. Meat Snacks $ 33 Mn business Small unit sold for $9 million

European Meats $ 1.1 Bn business Sold to Smithfield foods for $ 575 mn

Sara Lee Branded Apparel $ 4.5 Bn business Spinned off as an independent company named

Hanesbrands Inc.

SPIN-OFF OF HANESBRANDS Eroding sales and weak returns Shareholders got 1 share for 8 shares they owned Hanesbrands began independent operations in Sep 2006 In its first 6 months, it announced the closure of 4 plants

and 3 distribution centres to create a lower-cost global supply

One time dividend paymentof $ 2.4 Bn Borrowed $ 2.6 Bn and was in huge debt Got a B+ rating Debt to equity ratio was extraordinarily high Fiscal 2006 - $188.6 - $74.1 million Decrease in net income increased interest expense,

reduced operating profit, and a higher income tax rate Strong cash flows from operations allowed to pay down

long term debt by $ 106 million.

POST RETRENCHMENT STRATEGY

Attention on growing the sales, market shares and profitability

Objectives (target -2010) Reach $14 billion 12% operating profit margin

Strategy: Three competitive capabilities Strong focus on consumer- Innovative

products, competitive pricing & brand-building Category management and leverage through

size Operating excellence-lean manufacturing,

economies of scope

THREE-DIVISION STRUCTURE•North

American meats brands

•North American bakery products

•Senseo single-serving coffee products

Sara Lee Food & Beverage Division

•Meat products

•Bakery products

•Coffee and tea products

Sara Lee Food service

•Sales of coffee and tea products

•Bakery goods

•Household and baby care brands

Sara Lee International

Division(outside North America)

SARA LEE FOOD & BEVERAGEPackaged-meat industry• Industry Attractiveness

$9.6 billion North American packaged-meat industry Sales of meats in NA improved by 5%

• Sara Lee’s meat productsMarket share of 19.6 % (Largest seller Kraft-21% market share)Relative market share: 0.933Focus on product innovations & effective promotions

Fresh bakery business• Industry Attractiveness

Market growth-$91 million in 2003 to $697million in 2006• Sara Lee’s fresh bakery sales

Number 1 in the national brand of bread with a 7.2 % market shareRelative market share: 1.33 (No:2 Pepperidge -5.3 %)

SARA LEE FOOD & BEVERAGERetail Bread Market

• Industry Attractiveness$101 billion market in NA

• Sara Lee Second largest player(behind Basen) Relative market share: 0.633(weak market position vis-à-vis

rivals)

Frozen Desserts

• Industry AttractivenessLow projected growth Market size: approx $75 million

• Sara Lee’s Frozen DessertsNo significant growthPoor customer rating

SARA LEE FOODSERVICE

Food-service industry sales projected to grow from $476 billion in 2006 to $522 billion in2010

SLF held a 9% market share in deli meats sold to food service customers

11% share relevant baked goods 18% share of coffee and tea products

SARA LEE INTERNATIONAL

• World’s second largest seller of coffee in retail• Market share of 9%• Bimbo –number 1 brand in Spain with a 54%

market share• Packaged bread –expected to grow by 7-8%

Household and Body Care• Kiwi-number one shoe care brand worldwide• Global market share of 63%• Sanex was number 1 in bath and brand shower

products• Insecticide-28.1 market share in Europe• Ambi pur third largest brand of air freshner

THANK YOU