Bimbo in talks to buy Weston U.S. bread business

by Eric Schroeder
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MEXICO CITY — Grupo Bimbo said it is in discussions with Dunedin Holdings S.a.r.l., a subsidiary of Toronto-based George Weston Ltd., to acquire the latter’s U.S. fresh bread and baked goods business in the United States, which includes the Stroehmann, Thomas’, Entenmann’s, Arnold and Brownberry brands.

Responding to the announcement, George Weston said "no agreement has been reached and there can be no assurance that any transaction will be concluded."

In a research note issued Dec. 4, analyst David Hartley of BMO Capital Markets estimated proceeds from the sale could be as much as C$2.4 billion ($1.9 billion), which he suggested may be used toward a buyout of the 38% of Loblaw Companies equity that George Weston currently doesn’t own. Loblaw Companies is Canada’s largest food distributor and a provider of general merchandise products, drugstore and financial products and services. George Weston currently owns 61.85% of Loblaw.

Any potential acquisition would not mark the first time the two companies have been engaged in a similar transaction. In January 2002, Grupo Bimbo made its first significant entrance into the U.S. market with the acquisition of the western U.S. baking business of George Weston for $610 million. That transaction, which doubled Bimbo’s U.S. sales, gave Bimbo access to the Entenmann’s, Thomas’, Oroweat and Boboli brands in the western United States, as well as five baking plants with locations in Texas, Colorado, California and Oregon.

For its part, George Weston used the proceeds from the sale to reduce debt associated with its $1.7 billion acquisition of Bestfoods Baking in July 2001.

The potential acquisition also represents Grupo Bimbo’s second public attempt in the past year to broaden its presence in the U.S. fresh bread market. In November 2007, Bimbo Bakeries USA, a subsidiary of Mexico City-based Grupo Bimbo, said it planned to join The International Brotherhood of Teamsters and Yucaipa Cos. L.L.C. in putting together a bid for the purchase of bankrupt Interstate Bakeries Corp. Grupo Bimbo subsequently pulled its name out of the running for I.B.C. on Dec. 13, 2007.

According to data provided by Information Resources, Inc. and published in the "Corporate Profiles: State of the Industry" report of Sosland Publishing Co., George Weston Bakeries, Inc. was the No. 2 ranked vendor of U.S. fresh bread in the 52 weeks ended July 13 with sales of $612,835,700, trailing only Sara Lee Bakery. Bimbo Bakeries ranked No. 5 with sales of $527,234,800.

Shares of the two companies stocks fluctuated widely throughout the day, with Grupo Bimbo’s shares falling nearly 5% while George Weston’s shares rose nearly 5%.

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