U.S. package-food company Sara Lee Corp. (SLE) recently closed the divestiture of its North American foodservice coffee and shot beverage business to J.M. Smucker Company (SJM). Smucker will make an upfront payment of $350 million in cash for the purchase and has agreed to pay $50 million to Sara Lee through the next 10 years. The deal was announced in October 2011.

With the acquisition, Sara Lee’s liquid coffee concentrate brand Douwe Egberts will be added to Smucker’s portfolio. Smucker has also attained the right to license the Cafitesse and Pickwick brands. Moreover, subsequent to the acquisition, 450 Sara Lee employees will be shifted to the Ohio-based J.M. Smucker plant. Smucker expects the newly acquired business to contribute approximately $100 million to the company’s net sales in 2012.

Portfolio Streamlining

Recently, Sara Lee has been dispensing with its redundant units to focus more on its most profitable food and beverage businesses.

Sara Lee plans to wind down the rest of its North American beverage business going forward. It plans to discontinue its Senseo coffee brand in North Americas by March 31, 2012. Additionally, it will sell or close the remaining assets of the business.

In December 2011, Sara Lee completed the sale of its fresh bakery business in Spain and Portugal to Grupo Bimbo SAB. Additionally, Grupo Bimbo also acquired Sara Lee’s seven manufacturing facilities in those regions.

Again, in August last year, Sara Lee entered into an agreement to sell its North American Refrigerated Dough business to Ralcorp Holdings, Inc (RAH), for approximately $545 million. The two retail giants are expected to complete the deal by the end of calendar year 2012.

The company has also announced its decision to sell the French refrigerated dough unit. Franco-Canadian private equity firm, Sagard, has emerged as the final suitor for the deal.

Sara Lee continues in its quest to boost returns and remain competitive in this difficult environment by embarking on aggressive cost reduction initiatives, exiting unprofitable markets and streamlining its portfolios.

Delves Deep into Beverage

In a separate development, Sara Lee has acquired Tea Fort?, a Massachusetts-based leader in the ultra-premium tea category. The terms of the deal has not been disclosed.

Tea Forte is a market leader in ultra premium teas, and is known for its innovation in the tea category. The company has its business spread across 35 countries where it sells loose tea and pyramid-shaped infusers to hotels, restaurants and luxury retailers.

The Tea Forte buy follows its December acquisition of Dutch caf? store operator CoffeeCompany. The acquisition attractively positions the company’s coffee and tea business. Moreover, this provides Sara Lee with a stronger foothold on the global platform of coffee business.

Besides, in November last year, in a bid to bolster its presence in the office coffee business, Sara Lee and its Norwegian partner, Kaffehuset Friele, struck a deal with ISS A/S to acquire the House of Coffee business, a food-service provider in Norway and Denmark.

Future Ahead: Splitting Apart

Sara Lee is all set to split into two public companies by the first half of 2012. Post split, the company will have two separate units, namely the North American unit, including brands like Jimmy Dean and Hillshire Farm, and the International beverage business, with brands like Pickwick and Maison du Caf?.

Last month, the company announced its plans to move its new North American Meats corporate headquarters from Downers Grove, Illinois, to Chicago, in early 2013. The company has not yet finalized the location for its international beverage business’s headquarters. Nonetheless, it is likely to be located overseas.

For fiscal 2012, Sara Lee affirmed its earnings guidance in the range of 89 cents to 95 cents per share, amidst unfavorable foreign currency exchange rates and the reclassification of North American Foodservice Beverage as a discontinued operation.

Currently, Sara Lee has a Zacks #3 Rank implying a short-term Hold rating. On a long-term basis, we have a Neutral recommendation on the stock.

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