Sara Lee buys bakery giant

Food and consumer goods maker Sara Lee Corp. said on Monday it will buy No. 2 U.S. bakery Earthgrains Co. for about $1.7 billion in cash, gaining distribution to extend its baking operations and a platform to grow other Sara Lee branded foods. In its largest acquisition ever, Chicago-based Sara Lee​ said it would pay $40.25 a share in cash for each share of St. Louis-based Earthgrains, more than a 50 per cent premium over Earthgrains' closing price of $26 a share last Friday on the New York Stock Exchange. Including debt, the total deal is worth about $2.8 billion. Sara Lee said buying Earthgrains will quadruple its annual bakery sales to more than $3.4 billion and push its food sales above $10 billion, or more than half of total revenue. It also gives Sara Lee access to Earthgrains' proprietary delivery routes, known as direct-to-store delivery (DSD), which it will use to gain a national presence for its baked goods. "It's taking the Sara Lee brand into new categories,"​ Sara Lee President and Chief Executive Steven McMillan told Reuters. "Clearly it allows us to move into things like refrigerated dough and other categories with a branded proposition that we think can drive some strong incremental revenues."Sara Lee expects the merger to contribute an extra $300 million in sales over the next five years, in part through the introduction of other food categories into the Earthgrains distribution system, McMillan said.Earthgrains shares rallied more than 50 percent on the news, rising $13.81 to $39.81 in late New York Stock Exchange trading. Sara Lee stock was up 49 cents to $19.43. Source: Reuters