New day dawns for American bread baking
December 18, 2008
by Morton Sosland
The nuances and implications of last week’s announcement that Grupo Bimbo has agreed to buy the U.S. fresh bread business of George Weston Ltd. are so many and so far-reaching that this stunning transaction easily gains stature as one of the most important developments in the history of baking and, indeed, of the entire food industry. At the top of any list is the way that combining these two businesses will for the first time create a truly nationwide wholesale baking company. Previous moves toward this end fell short of national coverage to the degree Bimbo will achieve. It elevates a company that first entered the U.S. baking business 15 years ago to not just leadership in the bread market in the United States, but to leadership in the Western Hemisphere and probably the world.
Consolidation has been a constant in bread baking from the beginning of the commercial industry traced to the 1920s. It was in that roaring decade that corporate ownership of family-owned businesses came into existence. Yet, hardly more than a pale shadow remains of the once giant companies established during the 20s. The industry has subsequently witnessed waves of mergers and acquisitions that have created the modern-day industry at top of which Bimbo stands. It is not overreaching to say the absence of major acquisitions in recent years had prompted increasing speculation about the inevitability of further consolidation. But those conversations never envisioned George Weston, a company founded on grain-based foods, being willing to sell, or Bimbo’s well-known ambitions including such a dramatic move.
It is tempting to speculate that the uniqueness of a Mexican-based company acquiring a Canadian-based bread business in the United States facilitated the transaction. Hardly a week lapsed between the two companies revealing preliminary talks and announcement of the final agreement. There’s no question that familiarity from an earlier transaction in 2002 when Bimbo bought part of the Bestfoods Baking business from Weston eased negotiations.
That the Bimbo-Weston deal is all cash, totaling $2.4 billion, ranks it as the second-largest such transaction. The record came with the 2001 acquisition of The Earthgrains Co. by Sara Lee Corp., which involved $2.8 billion in cash and debt. Both far eclipse the 1995 acquisition by Interstate Bakeries Corp. of Continental Baking Co. for $558 million.
From the moment Bimbo entered the U.S. fresh bread business by acquiring Mrs. Baird’s Bakeries in Texas from the Baird family, it has shown itself to be a formidable and nimble competitor, albeit one that builds sales in ways that leave space for competitors. Yes, its business has expanded through acquisitions, but it also has achieved success with strategies that have brought its brands into new distribution. The financial strength of Grupo Bimbo is dramatically underscored by the commitment of three leading banks to provide the funds at a time when tight credit is the overwhelming force. While a cash transaction of this dimension would be expected to draw the attention of rating agencies, Bimbo’s prior handling of debt is a source of comfort. The same goes for its business success, as witness not only its accomplishments in America, but in recent entries into South America’s largest markets, Brazil and Argentina.
Bimbo is and has been for years the only major fresh baking company with an international presence. It has been successful almost everywhere it has ventured. To have this company about to become the largest bread baker in America is not just a highly positive endorsement of the bread market but of the opportunities that exist in this business around the world.