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Sara Lee Spins Out Coffee and Tea Business

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No reasons were given for the split.

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While nobody does it like Sara Lee (SLE), it appears the global manufacturer has decided its international coffee and tea business, dubbed CoffeeCo, can survive apart from the meats, bakery, and household products it distributes. The news calls into question why recent beverage acquisitions were made by the company. Were there plans to buy and sell-off all along?

Sara Lee has been going through transitional phases as of late, with much its business being acquired by other companies. In October 2011, the brand's refrigerated dough business merged with Ralcorp Holdings (RAH), with another sale in November of its Fresh Bakery business. Most recently, the JM Smucker Company (SJM) took on Sara Lee's North American coffee and hot beverage business in January, with tea and coffee acquisitions taking place since then.

With all the pieces of the pie being sliced and served to different companies, it is no wonder that the Sara Lee board unanimously approved a 1-for-5 reverse stock split of shares of the common stock following its separation from the coffee and tea business.

During Sara Lee's most recent earnings call, the coffee and tea category of the brand saw strong pricing with sales of singlets and capsules doing well. While lower volumes offset the positive trend, the full year outlook on the business appeared to be upbeat.

"Looking ahead to the full year, we are beginning to see commodity costs decline in the coffee and tea business and stabilize in our meat business. This should have some beneficial impact on our fourth quarter results, particularly for coffee and tea, and gives us confidence that we will end up within our existing guidance ranges," CFO Mark Garvey said on the May 3 call.

While no answer has been given as to why the split is happening, the distribution of the CoffeeCo coffee and tea business has been slated for June 28 after market close. Shareholders can expect CoffeeCo to pay a $3.00 per share special dividend, with the brewer then set to merge with a subsidiary of DE MASTER BLENDERS 1753.

Could the reason for the separation be the constant success beaneries such as Starbucks (SBUX) and Green Mountain Coffee Roasters (GMCR) are experiencing? With Keurig-cup sales continuing to ramp higher over recent months, the competition may have been too much for Sara Lee to take.

Sara Lee may continue to part ways with portions of its business that would be better served under additional or new management, but one thing is certain: Coffee and tea will no longer be a part of "the joy of eating."

Sara Lee closed yesterday at $20.90, up 7.51% year-over-year.

Editor's Note: This content was originally published on Benzinga.com by Katey Stapleton.

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No positions in stocks mentioned.

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