Sara Lee Launches Fashion Makeover
BAY: A flood of merger and acquisition news -- some confirmed, some rumored -- hit the market today. France Telecom agreed to buy British cell phone firm Orange from Vodafone AirTouch in a deal for $37 billion in cash and stock. France Telecom surged more than 8 1/2. And Vodafone gained nearly 4 1/2. Japanese cell phone company NTT DoCoMo reportedly is talking about buying up to 20 percent of VoiceStream Wireless, worth more than $4 billion. No word from VoiceStream, but the stock jumped 19 1/2. Also today, CIBA Vision agreed to buy Wesley Jessen Vision for about $750 million, or $38.50 a share. Wesley Jessen jumped more than 3 1/2, but CIBA's parent Novartis fractionally lower. And press reports on both sides of the Atlantic say Anglo-Dutch food company Unilever will raise its bid for Bestfoods to at least $70 a share from a previous $66 offer. Bestfoods gained more than 1. Unilever slipped more than 1.</s>VARNEY: Another food company unveiled big changes today in an effort to sweeten its bottom line. Sara Lee, which owns a diverse group of food and consumer businesses, said it is selling or spinning off several of its best-known brands. But the stock gained only fractionally today on concerns over the company's short-term growth. Susan Lisovicz reports.</s>SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): Its name conjures up images of supermarket pastries, but Sara Lee makes a lot more than pound cake. Its 150 brands include the Wonder Bra, Chock full o' Nuts coffee, and Ball Park franks. Now Sara Lee is shedding two of its best known names. Coach, the upscale leather goods maker, will be spun off by the end of the year; so will the food distribution service PYA/Monarch. It's also selling the popular sports apparel brand Champion, and the International Fabrics division of the British company Courtaulds.</s>STEVEN MCMILLAN, PRESIDENT & COO, SARA LEE: These steps will make us more understandable to the financial community, I think it will also make the businesses easier to manage and allow us to redirect resources to where we can drive higher returns and faster growth.</s>LISOVICZ: Sara Lee is based in Chicago, but the company made its announcement in New York to drive home its focus on increasing shareholder value. Sara Lee stock has slid 21 percent over the past year. (on camera): Sara Lee's moves aim to streamline its diversified businesses, but its product mix basically remains the same: food and beverage, consumer products and underwear. (voice-over): Sara Lee's restructuring includes several acquisitions. It's buying UNIAO, the largest coffee company in Brazil, as well as Sol y Oro, the leading Internet apparel company in Argentina. And it's taking a stake in the Johnsonville Sausage Company in the U.S. But investors were unimpressed with the news. Analysts say Sara Lee has already been hurt by persistent weakness in the euro and that outlook for only mid-single digit growth for 2001 didn't help.</s>JOHN MCMILLAN, PRUDENTIAL SECURITIES: The bad news, you know, stems more to near-term earnings, the outlook for fiscal 2001, largely because of currency's early hedge this year, but they were unable to hedge effectively for next year, so they're going to get a double whammy, a hit in currency for next year.</s>LISOVICZ: But Sara Lee insists that the real benefit of its strategy will be apparent long term. Susan Lisovicz, CNN Financial News, New York.</s>BAY: But just how long will it take for those changes to bear fruit? In tonight's "MONEYLINE Focus," we're putting that question to Steve McMillan, Sara Lee's president and COO, who takes over as chief executive on July 1. Steve, welcome.</s>MCMILLAN: Thank you.</s>BAY: Is this a first step toward an identity change or is it really a tightening of a focus at Sara Lee?</s>MCMILLAN: No, I would define it much more as a tightening. We've streamlined the business, we've tightened up our vision, we see ourselves as operating with a stool that has three legs, clearly our underwear and Entemann's business, our household products business, and our food and beverage business. So it's really a tightening, it's not a major change. It's a significant amount of divestitures, about $4 billion of sales, so 20 percent of the company's revenues we're divesting, only about a little less than 10 percent of the operating profits.</s>BAY: Now, one of the things that you are selling is Champion, and I know you describe yourself as a three-legged stool. But might you not be inclined to sell the intimate brands, the hosiery businesses and just focus on household products and foods?</s>MCMILLAN: No, we actually have been in the apparel business for over 20 years and very successfully. We think it's a wonderful business, we felt like it had gotten perhaps too diverse. We tried to stay away from fashion businesses. Coach, obviously, is a fashion business, it has elements that we don't find in our other businesses, it's not a real good fit.</s>BAY: You came to New York to make this announcement. You've been trying to boost investor confidence. Were you disappointed by the reaction -- the market's reaction today?</s>MCMILLAN: No, actually I was delighted by the reaction today. As we said earlier, we had some good news and some bad news. We do have a significant impact from the euro on our business for next year, so in that sense we gave guidance to Wall Street today that was somewhat lower than some of them had expected.</s>BAY: It's something that you don't normally do, is that correct, give that much guidance?</s>MCMILLAN: Well, we always give a certain amount of guidance, and this time of year as we're getting ready to start our new fiscal year is generally the time we talk about next fiscal year. But we did give some guidance, it was somewhat less than street estimates were, and the stock actually went up a little bit.</s>BAY: You -- as you noted, you will be bringing in a fair amount of cash with the spin-offs and selling some businesses. Some analysts say they'd love to see you do a very focused acquisition, buy a Dial, buy a Flowers Industries, for example. Is that something we are likely to see you do?</s>MCMILLAN: Well, acquisitions are important to us, they've been important to the company throughout its history and I think they will become no less so. We expect to generate about $2.5 billion worth of cash from the divestitures, so obviously we have some resources to go out. I won't predict what we might do, but I do think we'll be more acquisitive than we have been in the past.</s>BAY: And what about a stock buyback, another thing Wall Street would like to see?</s>MCMILLAN: Well, we've been pretty aggressive recently in repurchasing our stock. At these levels, we think it's a great buy, so we'll continue to be aggressive in repurchasing our stock along with everybody else.</s>BAY: Steve McMillan, thanks for joining us, and good luck when you take over the reins officially in July.</s>MCMILLAN: Thank you very much.</s>BAY: Stuart.</s>VARNEY: All right, thanks very much, Willow. Still to come on MONEYLINE, from Hollywood to Wall Street, media stocks reap the benefits of a record weekend at the box office.