John E. Gamble The Universty of Alabama · 2017-12-14 · Arthur A. Thompson The Universty of Alabama In February 2005, Brenda ßan~ Sara Lee Corpomtion's newly appointed prCiídeßt

Arthur A. ThompsonThe Universty of Alabama

In February 2005, Brenda ßan~ Sara LeeCorpomtion's newly appointed prCiídeßt and

CEO, annouiii:d a bold and ambíLíoU5 multí-

")'~u strategic plan to transform Sar.i Lee iiio amore tightly Jocuscd food,ben~r4g and house-hold products comp-.iny. The centerpiec ofBarnes's tmllfonnation plaii was the divestítureof weak-performing hUl;lnesuníts and product

categones 3coounting for S7.2 bíllon in sales(37 percent of Sam Lee's annu31 :rcvcnues).Whíle¡he diYC5titurci would cut Sara Le'sreirenuC5fmm $19.6 hílíon to about $123 bíJJOß, Barnesbe1íe¥ed that S3ra Lee\'(ould be pettC"T off con-centmlÍ0E its financial and iwdnagerul resourceon a smaJJer number of busÍJJ~ segments in

whch market prospt'cs were prommog and SamLe's brands were well positíoned.! Once i1ieretrendunent ínítiali\'cs wcrccompleted, the planwas to dn\'e the company's gnm1h '¥ia ínítÍltiH."Sto boost the sales, markei $mire and profitabil-íty of ahe key rcm.iining bmnds: S3m Le breadsand bakery producl$ßall Park me-.ns, Douv.e

Egbem colfee Híllslúre Farm mea JimmyDe-.m sausge, and Sens ~jngle-5er¥c coffeeproducts Company exectí~'e$ beIie\"ed that theretrem:hment'trould alliny ren:iiue. to incrC'dsc to$14 bílíon by fisca12OJO and that the company'sopemtÍßg profit magiß Í1i 2010 would incfeæe toat leat 12 percu (versus an S.l p¡m::cnl operat-

ing profit margin in fiscal 2(04).1By fi.alYC"Ar-end 2010, ít remmnedunclear

to what extent iberetrendiinent smitegy had

benefited sliare1iolder~ The company liad mÍ5edboth rewcnue and operating profít margín projec-tions for 20HJ.Rcyenues had iiicrelSed to onl)'

ni:enm

John E. GambleUniversity of South Alabama

$1O.8bí1líonín fiSCAI 2010, ¡ind the company'sopemling profit margi dming the yc-.ir hadimproved to onb' 8.5 percnt. Dunng 2010,

Sarale had engaged ui further retrenC"imenlwith the di\"cstiturc of íts International House-hold and Body Care busines whicb produceand marketed Kiwí shoe care products, Sanexpersomil care products AmhiPur aíT freshcIJ-ers, and v-.irious insiicides and cleaning prod-ucis sold outside North America. Tbe comp-Anywas also well under way with J'rojeci Acclemte,a company-wide cost ~n':ígs and producti~'Ítyinítíaiirc launched in 200S that focused on out-sourcing, supply ihain effcíencies and o¥erhe-Ad

reduction. Project Acclemie had produce say-ings of S180 milion by 2010 and \V-dS expeedto produce eumulatí.c sm.-jngs of :$350 mi11on 10

$400 miJJon by the end of fiscal 2012. Manaee-ment also laum:berl a smire bu)'back plan in 2010that would repurchase $25 bilon 10 53 bi11on of

share oyer a thre-ye-..r period. Also during 2010,Brenda Barnes had bee forc to step down as

CEO in Augus1 after suffenng a stroke in :M~iy.The company's chief financial offcer, Marcel

Smits, had been named inienm CEO \vhile theboard searched for a permnent replacement.

Smíis's st..itegics Jor 201 i focus on increasingshare in the company's most powerful by.suds

pursing growth in attmctí\"e geogrAphic markets

and fully eaptunng the anticijYdted benefits ofProjec AccelerAte.

COPJnt.,2fJ1(b¡ Attll Á. Tip-'Wian.lohii L Gai:Alri~ reed

C-24 Part:2 Case'S ¡~ Crmitiirg iiJl!l Eiirn1ting SlHde1J

COMPANYBACKGROUND

headquarters location from Baltimore to Chieago;the company's share began trding oil the NewYoLk Stock Exdiange in 1946. lii 1954, the com-v,my's name ivas changed to Conslidated FoodsCorpomtion to emphasize its dhreßlfedrolc infood proCCng. packaging. aud dístributioii. JI1J956, Consolidated Foods acquíre Kitdicns ofSam Le and als entere tJiereail food businessb.l" acquinng 34 pjgglyWiggy supermarke15 (laterdí.csted iii J 966). -Thc next 40 years were mar:kdby a series of related 3ndulUdatcd acquisitions:

TIie oJius of SaruLec C~)lpomtioii date to 1939,

WhelJ Nathan Cummins 3i:uired C. D. KC1JlY

Company, .1 small wlioleslc dÍ5tnbutor of ~ïJgai,coffee and tea that had nct sale5 of $24 milljoJl.The purclia~ of Spr.quc, Warner & Companyin 1942 promptw a name chau,g to 5pmgucWarner-Kcnn)' Corporaiion and a ~hm iu tlie

Vear À~qulsltlons. .: .' .. - " ' ' ,...... .... "1962 Jonker Frs, a Diic prodlJ 0.1 canned goos1956 Oxforl Chemlcal Corporaon

E "Katii5 So Compay, a prducer Of meats1968 Bryan Fos, a mea products produce

Ðectolux, a dict seller 01 vacuum cleaneæ

Ganl, an apparel produceCountr Sel", an apparel producerCaadlle, a producer 01 womoos íntimale appael

1969 Ms Gloves (Iae¡ renamedAri Jsoloner)1971 Hillshlre Farm, a meal producei

Rudis Fa, a meal produCe!

1972 EraJ, a Dir rompany 'iß produce and maleted peæonal care products (latr renamed lnuadaJ)

1978 Chel Pjefle, a manufaeurerldisl.ulr 0.1 frzen prepared dessertsDouwe Egber, a Dulc roftee and grocry copany

1980 Produclos Cri. Yen:e, a 5panl hosehol pwduct copany1982 Stadard Meal Com"pany, a procssor 01 meat product1984 Jimmy Dean Meat, a manu1rer 01 vaoous meat, food, and leafher pruct

tiícolas KiWí limld, an Australiabas manufacture and marker 01 pelSna household, shoe aodca cae prouc and home medicines

1987 Bil Mar Foo, a producer 01 tirkey-se prodctsDJm, SA, the leadir.g hosiery brand lr France

1988 Adams-MllíCorpora1on, a mamlaeuær olllosery pwducts (pvided an entry into the men'5 baslCsot: busnes)

'1989 ChampÍOn Prouct, mal'rlacllrer 01 prlesSÍonal-qualty Jm athletic wearVan Nelle, a Dulc company acve ío rollee and teaHygrade Food Prouct, a manufacturer 01 bo dogs, luncheon meats, baco, and ha twJic: ínclded

toe BaD Park and Hygraóe llot dog bran)1990 Henson.Kickemlck Jnc., a manutacturer 01 li9h-quaity foundations and daywear1991 PJayixApparellm., an íntemarional manularer and marketer ot áitite appar prooucts

Riobros, a marn.dacturenmaler 01 men:; and boys' underwear ín Mexic

'1992 BP Nutrí1oifs Consumer Fo Grup

Gjlte HosíerBessín CorpoatnThe furníture cae bunesses olSC JClhnoo Wax

(CarrJn

0ic~'ara.po'Öt'šii~r~?na,1 GÒPY)

Caiie 16 Sara u-c Corp'i:MWß in lOU1: Has 115 "R1i1miic'/ill Strore Ben Succcsruin?C-24S

Yea7, . AcqUiSft~~;- (Conc/ud;d) --: ' . --- ... .' --. -'" ' -,

A majo.rdy íntere.l ín Maglifici Betra SpASelec assets of Mark Cross loc,

1993 Smíthtiiw Beem's European bat and body cae brands1997 Aoste, a Fr meat rompany

Loable Ilaana SpA, an ltata íntimat apparel manulactrBrossard France SA a Fæ maoulaurer ot bakery product

1998 NulJelícsCafé do Poo

1999 Wecsler CoffeeChoc full dIMsContiental Coffee

2DOD Hi. Bros., MJB, am Chase &. 5am coffee brands (acqlired from Nestlê USA)Courlaulds Texes, UK-based producer 01 íntimate apparel bJds Gossan: and BeJ1eJCaé Plio, tne number one coffee rompany íri BrailSol y Oro,tte JeadinIl company in 'Womens oodeJ'ear in Argentina,

2DOL The EahGralns Copany, the nuer two player íri tie U.S, bakery marketA máJOr Europea baker company

John H. Bryan, foniier hed of BI).1O Meats

(wliícli thecompanr acquired íii 1968), becmeprcsident and CEO of ConsHdated Foods in1975 and sen'ed as CEO UJJril 2000; Dr;71n wasappoínted chairman ín 1976, .1 pObition he lielduntil 2001. Bryan was the chief architect of thecomp3iiy's 3cquísitiOJJ s1ratcgy duríng 1975-2000, guíding both its divers1fcatíon efforts andíiS eme~C1Ji: as a glohalcorporatíon. D)' 1980,sales had reched S5bí1íon. In 1985, COß5oli-

dated Foods changed its name to Sam Lee Cor-poration. Sales readied SID bíllon in 1988,

SJ5 bítlion in 1994, and 520 bilJon in 1998. But

re.enues pe-.ikcd 31 the $2 bíllon level in 1998-J999 as management struggled to manage thecompany's broadly díversified and geograpllíC"dllyscattered opcmtíons

In 2000, C. Steven McMm3n succeeded JohnBryan as CEO and president of S3ra l.; Bryan

remaíned chairman until lie retired a year 13tcr,~it wmch time McMiUari .amed the additionaltíile. McMíU3li launched str.tegic initiatives tonarrow S3ra Lee's focus on a simllcT numberof global braoded COJJsumer package-goods

segent.c;Food and Bevcmge, IntímatC5 andUnderwe-.ir, and House1iold J)roducts. McMíIanorehestmted several divcstíiurcs to begin tIie pro-ce of sb3rpeniiig Sara L~'s busiiiC$ focus;

Ý~ar Divestitures " ' .....1966 Pigg1yWi99'Y supermai1 cJiáin2000 PYAfMorircl (sold 10 Royl Molds U.s

food servce for neay $1. bilJoo)Champí(m .Erope

Coi:1b 1ntematíonal Fabnc dMsíon ot

Coui1ul!lThe intenanal bakery buesesin France, India Chia, and tie UníKídom

2004 Filooro, an ltata ¡ritimate apparelbusiess

Brenda C. Barnes who liad been pICidentof Pepsi Cola North America from 1996 to 1998,joined Sara Lee as president and chief opemtiiigoffcer in July 2004. At the tíme of her appoint-ment, Barnes age 50, was .1 member of the boardof directors at Avon Pwducts, the New YorKTimes Comp3ny, Se-drs Roebuck, and StaplC5Dunog lier 22-year career at PepsíCo, Dameshad held a number of senior executive positionsin opemtions, general management, manufactur-ing, sales, and marketing. From Novcmberl999to March 2000, she served as intenm presdent

("Ric!h,i!~jo.QOI'S,;PerSonal COpY)

C-246 Part 2 ~ íir Crafìßg am Eiæ'Wíng StratC'Y

and chíef operating oJIkcr of St3nmod Hotels& RC5ortS. Dames's appOJlltmeJlt as presideJJI 3JJdCEO of SamLe was announce on February10,2005, die same day as ibe announcement ofthe plan to transform Sara L~ímo an even moretiglitly focused company.

SARA LEE'SRETRENCHMENTINITIATIVESThe fiT'1 phae of Brenda Darnf$'s immforma-tion plan for Sam Lee was to exii cigll bui¡iJ)C5C$

that had ben targcicd as nonstrategic:

. Dím:t sellug-a $450 míJlon busines th3t

sold cosmetics skin carc products fragr.inCCtoiletnes hOlJhold product, apparel,and oilier product 10 consumers through

a network of independent salcspoople in 18countnes around the world, most notalyin Mexico, Austraia, the J'hilippínC5 and

Jap-.ii.lii AUgl15t 20D5, Sam u-e anJlouncea definiti~'e aiiccmcni to i;clJ i1$ dírcci sell-ing blJines to TUPllen'ian:: Corpomtíon for5547 míIlOJl in cash,J 'I1le sale included prod-uc-is being sold under such br.nds as AnoyShJailL House of Fuller, House of S3m ~,NaturCm-e. Nutrimctics, 1\'11\6 Co.smético.sand Swissgarde,

. u.s. retail cofJee-'â $213 mílion hmi-

nes that inarketcd thc well-known Clioc"full o'Nuts, HjllS ßro.i,MJß, and Chase &Sanborn coffee plus sircml pnvate-lahel cof-fee Not included in ¡he dí~esiilUre pIan W35

tlie sale of Sam Lee's fast-growing global col:'fee brand, Senseo, whici had S',des of 3PProX-

imaie1y $85 milloß. -I1ic U.s, retail coffeebusínes was soJdlO Jt3ly-bascd SegafredoZanetti Group for $82 mílioJl in late 2005.4

. European apparel-a Sam Le bu~iiiC5unít

that marketed such well-known brnds asDíni,Playtex, Wonderbra, Abandcrado, NurDie, aDd Unno in Fmni: Gennaoy, 1ta)"Spain, the United KígrOJ1L and much ofEastern Europe; ji aho íllcluder Sam .leCourtaulds, a UK-lYåSd maker of pn~'aic..labelclothing for retailers. TJ1C bmnded Europeanapparel b11ínes bad ne-drly $1.2 bjJloii in

sales in fiscal ye-dr 2005, endíng July 2, 2()05;thc Saralee Court3ulds business Jiad fis-C"dl 2005 S31es of 41boul $560 milloß,JoNo\'cmber 2005, Sam Le sold (he brandedapparl portion of the Europcin apparel

busiJl~ unit to an affliate of Sun C3pí-

tal l'artoers .1 U.s pn\71IC equíiy company,based in Boca RatOJ1, Florida, for about$115 míUíon plus ptlssble contingent 1"1)-meiits "based on future pcnonnance.5 In May2006, a big fraciion of Sam Le Courtauldswas sold toPDEnicrpríe Ltd" a globalgartnetll produccr ",-jtb nine facilitics tliatprodui:d more than 12l) milion garments

minuaU)i including bras,undenn~ar, níght-

"1I"C"df, 5wjm- and bechweaL formal wear,~ual wear, jackets and coats, baby c1otlie5and socks; the deal with PD EnierprJse díd

not include thre Sam Lee Courtauld5 facili-iicsín Sri Laiika (Sam Lee was con1inuing i1$efforts to find a buyer for the Sn Lanka oper-411i(115). Sard Lee rei:i\'ed no matenal consíd-enition .IS a reUIl of ihe S31e and remainedliable for certinobligaiíOJ15 of Sam LccCourtaulds after tbc disposition, the mo.i1

signficant of wliicli was the defined bene/it

pension plans lIiat were underfunded by $483míllion 3t the CId of 2005.

. European "Ills ami sllac-k~-a busnes iyiiliapproximatc1yf8 mí1\oii jn annual sal($ iiifisal 2005that marketed produclS under the

Dup'i bmnd ínihc Netherlamh and Delgiumas well .15 die Bénénuts br.od in Fnmcc, SaraLee sold ilS EuropedO nuts and sncks busí-nes in tlic Netberlands, Belgium, .mdFmncetoPcpsíCo for aPlroximately $I6D iniJlo1Jín No)'cmber 2005.

.. EimpeUlI ríC£-3 small busness that pack-

agedLae brood nce sold in iiiC NetherJmidsand other Europen countnes TIie businC5unit was sold to Grupo SOS of Spain for$62 mílíonin No¥cmber 2005.

. US. metJl s//Jcks-a small unit WJih annual

sales of $33 míllíon in f15crll 2005 and

525 mílíon in fi.l 2006. This busíoC5 was

sold in June 2006 for $9 iní1lon'i.. European meilis-a $ 1.1 billon packaged

meats busnes in Europe that had respect-able market posítions ín Fmnce the Beneluxr(.'gon, and Portga and included such brands

C?lCti~r\i¡)iiÓ'ól'S'je.r;,Ona, copy )¿,., _.' ',~ -1 .,- ,', J-' ",

Ca5e 16 Siira l.e Coipm2J in 2'11; H¡r~ ll! ßrncnc'hmct Stmtegy Been Sut"cCSflJ1Î?C-247

as Aoste. Justin ßrJdou, Cocbonou, Nobre,and ImperiL Hcadquartercß in lloolödorp,tJie Nctherlands S'Am u-e's ElJrope-.in me-dts

opemtioJl generated $1 J bJ1Jon in :sles in

fiscal 2005, and employed approxímately

4,500 people. In June 2006, SaraLe com-pleted t1ie sate of this unit to Smithfield Foodsfor $575 milloii iii C3h; based iii Smithfield,Virginia, Smíthfield Foods was the world'slarget grower of hDg5 and produ¡~er of pork

products and had subsúíaries in Franccl~olmid, lwmanm, and the United Kíiigdomtliat inarketed meats under the Knikus andStefano's bmnds as we1l as otlier brands. $

.. Sura Lee ImJlUled apparel-a busincs that

consised of produeJllg tlid marketing 10

brands of apparel: Hanes L'cggs Champion,ßaJí,Barely There,PJaytcx, Wonrlerbra, JustMy Size, Duofold (ouidoor aPP-AreJ), Olnd

Outcr J3anks (golf, corporate, and stylish

sportswear); sales of tJiC5C brands were

cJiiet1)' in North AmeriC"d. Latin Amenca, andAsia. Sam Le's strateg)' for exiting brandedapparel (20M sales of $4.5 biJlon) was to spínthe eJitirc busiiies off as ao independent com-pany named Hanesbmnds Inc. Two top execu-ti~c: of the SamLc hmnded apparel busíneswere iiamed to liead the new company. -The

spin-off was compleied in September 2006when Sam Le dísnhuted 101) perccnt of diecommon stock of Hanesbmnds to S3m Lc.eshareholders; share were tmded on the NewYork Stock Exdiaiige under the symbol Hm.

Sam Le management expecied tIie retrench-ment ínitiativcs to gencmte combíned nel after-lax proceds ín exce of $3 bjUion.Exhíbít l

pm~'Ídes financial data relaling to the dívcsted

busíiiesse. The iiexl section pro\'Ídes mliJítionaldct3i1s about the Hanesbrands spin-off

Exhibit 1 Financial Data for Sara Lee's Divested Businesses,Fiscal Years 20042006

(a) Sales and Income of DIvested Businesses, FiscalYears 2004-2006 (S millons).' ~ . ~ ~ ~, "'" ." . Fiscal Years ..

2006 . 2005 2004Net Sales of Divested BusinessesDire selOg S 20 S 473 $ 447

U.s. reta'i coll 122 213 2nD

Europan bramed apparel 641 1,184 1,26

European nuts am;! snack 54 64 66

Sa Lee CourlaiM 4' 558 536

Europea rice nfa nfa nfa

U.5. meat sna 25 30 33

European meals 1;114 1,176 1,11

Tota net sales $295 $3,698 $3,675

Preta Income (Loss) of Divested BusinessesU.i seling $ 14 S 55 S 55

U.s. retád coffee (46 (39) (2)

Europen braded apparel (186) (3D2) 67

European mits arJ snack 8 7 12

Saralee Courtu1s (69) 14

European ricnla n1a nfa

u.s. meat snacks (14) (1) (1)

European meats ~) 9D 101-Tot preta ..noome (los) $ (350) $ (19D) $ 24

(Coin

( Ri~tiafäl,DObl:~ 'per-SQr;âl,CÖPY )

C-24 Part:2 ~'5 iØ" Cnrllíøo aoo Exewting Strategy

Exhibit 1 (Concded)

,-" -, -- ~- ,-~-- " - --- . .--- ~-_.Fiscal Years ', .. " 2006 . ' 2005 ' 2004After-Tax Income (Loss) of Divested BusinessesD:i sellng

U.S. retal coffeeEurpean branded appaEuropea mi1s and snacksSara Le CortuldsEuDpean nre

U.S. meal sncks

Euea meaTota a!ter.1a "incme (loss)

$ 54(39)

(1533

(71'nla

(9)~$ (26)

$ (12)

(33)('195)

3(1)

nla

(1)~S (362)

$ 34

687

26da

86

$ 221

(b) Proceeds Realized from the Sales of the Divested Businesses (S milions)

," ~ ,-' ,~Saie-Prlc~-:-'" Preta~ Gàln ~n Sale T~ Be~-;flt (Charge) Aft~.Tax Gain

Dí.ecl seini¡ $ 547 :$27 S(107 $2U.s., reta coffee ß2 5 (2) 3

European braed apparel -1'5 45 41 86

European nuls ar snd!s 160 66 4 70

Sara Le Cour1ul ~omalefia 22 22

conslderation"European ôre 62 nI da nfa

U.s. meat sn 9 1 (1)

European meals' 575 42 ~) 40

Tola's $1,5'" SSnB $ (67) $441

"Tlåis url wa div. in æi:iy i. 20!l; da r~in gàns troil) W; sa is lro a ~i;y press re,lea of Naveier 7, 2!OO,re¡ii1ìll relt br Ihe lìl qi:/lrir ol1is201"Sara Le retr riail br unll ~ 00,4 oi $4 million al Sa le Co an mie paym of apmil:$ i:llioo Il rel it litilty du(in 2ß.-n adUa1 ¡¡ rælird tr Ihe ule. of Ihes tuirs wa ckr lO $1. blllO allr ta inlD aa ih paem nneio rey ii~ pM llli al5a Læ Cwna am oi c; iied ii dillíllh ~ of il iJ!bmi.wa = 001 aYalaeSii Sa Lee"" 2D 1r¡ ~rt iP- 56, ari vaoo a:inpar.y pre. rels aniilfl ti sa ari disri of îhe!bil1.

S3raLee management's decision to exii thebranded apparel business wa:i dnvcn pniii:-pally by eroding sales and WC".lK rciurru on irs

equity investment in brnllded api,arel-si'eExhibii 2. But rather than sell the busines, mau-agemeni delermined that sliareholders wouldhe bettcr servcd by spinning off the hrandedapparel husines as a stand-alone company. S3raLec sllareliolders reccived ODe share of Hanes-brands stock for evcry eight shares owned.

THE SPIN-OFF OFHANESBRANDS

( R¡thati'9.~.gli$,iper!Îoilal COpY)

Case 16 Sara We Cornvr"ln in 2'U, Has Irs Pælll!cliJl'ßt Strul.'QY &en SucCCssfu~? C-249

Exhibit 2 Performance of Hanesbrands Prior to Spin-Off by Sara Lee,

Fiscal Years 2002-2006 ($ thousands)~. "' - - _.- - . , .. ~, ~.,~ ,Fiscal Years Ending

. July 1,' July 3, July 3, June 28. . June 29,. 2006 2005 2004 2003. 2002,Statements 01 Income DataNelsales $4,472, .$,68,683 $4,62,741 .$,659,665 $4,920,8Cost 01 sales 2,987,.00 3,22,.1 3,092.025 3,010,383 3,28,56

Grossprolit 1,,85,332 1,,60,112 1,50,715 1,.9,2 1,642,Selling. general and admírilrve expenses 1,051,833 1,.53,65 1,087,964 1;126.055 1.146,59

Chargeslor (ine "from) ern act.iies (Un) 46,978 27,466 f14,397) 27,580

Income from opeiations 433..0 359,40 425,28 547,614 468,25

Inter exense 26..75 35,244 37,411 44,245 2,09lIer ínme (8,795 (21,2lJ) (12,998) (46,631) (13,75'3)

Inme be1re Jnoome taes 416,320 345,516 400,872 550,000 479,49

Income tax expen (benefit' 93;82 127..07 (48,680) 121,560 139,488

Nelincome :5 322,493 :5 216,509 ;$ 449,52 $ 428,440 $ 339,961

Balance Sheet Data

Cash an cash equivaJenl :5 298,252 ;$1,.80,799 S 674.154 S 289,816 S 100,250

Total asets 4,891,.75 4,2,154 4,402758 3,915,.73 4,064,730

l\OßCUJTt lial.itiesNonent capit lease ob.U,gations 2,786 6,188 7,200 10,0 12,171

Noncræl deferred ta liabilies 5,014 7,171 6,.9 10,140

Oter nool1ent lilites 42,187 4O,2O 28,734 329B 37,660

Total noncurrent liabl!.ties 49,. 53,59 35,9 49,21 59,971

Total Saa Lee equíly íneslmenl 3,22,134 2,602,362 2,797,370 2,7.448 1,762,24

SDuiie: Haii;r., lfl 206 10-l re.

H3nesbrands begun independent opemtionsin Septcmber 2006 3nd oTgunizcd its businessamund four pmduciJgeograpllic scgmeJls, asshown ín Eidiíbít 3.

Howe¥cr, the spín-oir of Haoesbrands liadsome unique financial featurcs. The lcrms ofthe spín-off called Jor Hane:brands to make ~lone-iime "div.ídendff p3ymimt of $2.4 bi1loJl toSara Le immediatcly following the commence-ment of .índependent operatíons. But in orderto make the $2.4 biUíon paymeni to Sam Leeand to fund its own operatíons, HanesIJmnds

borrowed 52.6 bilíon, thus saddlítlg itself witha huge debt that prompted Standard & Poor'sto assign the company 3 ß+ credit rating(wbich put 113nesbrands in i11e bottom half ofapp-.'C companíe5 from a credit rating sland-

point). TIie company's debHo-cquíty ratio wasextra ordinariI)' high, raising some qUC5tions

about whether the interest expenses assodatcdwith the hígh debt would stíJ leave HanC5bnmdswith suffcient funds and financial flexibílíty toinvest in re\'ítalízíng its brands and growing itsbusines

A BII5ÍJJf::rsWeek reporter speclated that the

re-.ion fOT the unusually outsized dividend pay-mcnl10 Sam Le was that the proceds Sam Lee

realíze from tlii~ sates of the dívested uiúts feUjar short of the hoped-for $3 bíUion th3t was aii

integrl part of theretrenehinent strategy and

restructuring announced bj' CEO Brenda Dames'in February 2005.9 To make up for the sliortfall,Sam Lee supposedly opted to gei more cash outof the Haiiesbmnds spin-off

( ~t~~/ìrd,D_ogIJ!rpêrsõnál cOjly)

C-2511 Part2 ~~ iri Crmtløi iiooE:itíng StralC'Y

Exhibit 3 HanesbTands' Lineup of Products and Brands, 2006

productlGeog~~phlc Segm-ents -"primarY Prod~cts ~-,-" -" _ Prlm;ry Brands ' '---. -

Intiat apparel, such as bra, panties

and bodywearMel's !JJweJlear and lûds underwearSocksAitiyeweaT suål as perloianceT-s1l and shrts

Casal ~/ear, :sch as T-shirt, fleeceand spDrt 5hírs

HDslActiyewear, men"s undeJlear, Ióds'underwea, íntima app¡¡el, soc,

lwSlery and casua 'Wear

Innerwear

Outerear

HDSlerInertional

Hanes, Playtex, Ba1 barely there, JustMy Size, Wonde.ibra

Hanes, Chpion, PDlo flalph lauren""Hanes, Cbp'ionHanes, Chpion, Jl1t My Síz

Hanes, Just My SIze, Oulelbai, HanesBeefyTCeggs", Hanes, Just My 5izHanes, Woooerra.: Plapex:Chplon, Ríiiros, Bali

"Ter Illil Fe 2O ~ 01 Sa L."i; Eieaii bra"ded appa biess preY Hai;es"ÖS fro seJli;g W.cimet ¡¡riPlay1 b,11ei piO in tO Euiv¡: llii,. ,ser oir Eu~ rorii'es, amd So Afific

"Hieiia Ji a ll apee ii æ. me~ UIe.ear ii Jldl' ~ea lIer ßI POLO Rah l. laSci; H¡rari. ~lS12! 1(¡-~ æpTt"

SARA LEE'SPOSTRETRENCHMENTSTRATEGY: INITIATIVESTO REVITALIZESALES AND BOOSTPROFITABILITYUpon thc completion of Sam Lcc CorpomtloJlsdisposítiOJl of nonsratcgic bu~íne~e5 in Septem-ber 2006, Sam Lee managemell turned its fullattention to increasing the s-.iles, inrkei sharesand profilabílt)' of iti; remaining bUb1nese: ~nietwo diief financial gO-dIs were to boost top linesales by 2~ pen..-ent 3nnuallyto reach $14 bil-lion by 2U1O and to .lc1iíevc a 12 percent operat-iDg profit imrgín by 2010.. SarA 1.. planned to

achie\'e its objectives by developíng three com-petití...c capabmties in .111 of its æm3iníiig bus-neses The company's ma~ment belie.erthatcompetiti.e pricíng, iuiio.'aiive new product andbrand-building capabílítie. W(''r esntial to its

efforts to pleae consumel5. Category mana-ment and leverage through sizewcrc also thouglitto be neclf)" for thc comp-.UlY to win new

accounts wit1) supermarket and dÍ5coinlt store

customers.. Operating cxccllencc 'jyas the third:key clement of its corporate stratcgy, which W35crítícal to competili'l pricing. Major opetionsinítiativC5 at SaraLcc included lean manufactur-ing, (.ocntmlizcd purcJiai.ing to achieve economicsof scope, aod thc implemcJltatíon of a commoncorporaie-wideinfonnation systems platform.

While the compan)' W-dS imliig headway in

focusíng on consumer nee&; and category man-.igemeni, iis efforts to impro¥e operating effciencyand increase operdtiiig margins were showing Jít-tie progres by year-end 2007.. Top managemeutlawicbedProjecl Acclerate iii March 2008 to:strengthen the company's ability to meet 'its objec-tive of achíeving an opemtíig profit margin ofJ2 percent by 2010. Projeci Acclerate includedaddítíOlial busines proi: outsourcng, operat-

ing segment resructuring, new supply chain e1f-

cieucíe: reductions in corporate ovcrhe-.id, and

:rductions in employee benefit costs. By the endof fis.i! 2010, Project Acclerate had producedtotal cumulatÍ\'c benefits of S180 milion. Man-agement expeted cumulative benefits forProjeciAccelemie to rech 5350 miion to $4 milion

by the cnd of fisl 2012.

The organítioiial structure de¥eloped by

Brenda Dames and ouier key Sara Le managersthat would besl enable the comp3nls bui.ine:es

( ~(~,h~ra,lJoqh~ j:~~W;l¡i1 copù

CalSB 16 5¡¡r¡ 1.'1 Corpm~ ¡n 20'rl: Has lis R£1wl1cÎlmet 5tmte Ben SUCCCS5fIJIlICM25J

to contribute to corporate g0315 waS a !ii%-di.,isiolJstruclUrc built around product símii3rítie: cus-tomer t;l'e'5, and gcgrapliíc regíom, 'The NoHhAmeni:dn Jwtail di~1síon inCluded líudi productssold in supermarkets and dllcouJlt swrc as lunchme-dts, hre-.ikfasi sausige, !inioke sausge, fr07.-ndeserts, and single-serve coffee; itl' North Amen-can Fresh Bakery dí~'isioJl included fresh hreads,buJls, and bagels sold in S1pcrmarkcis; mid NorihAmerii:.ii) Foodservíce included the $'Alcs of metlÍproducts, ookcry products, and coHee and teaproducts sold to food serviçc accouiits in "Mortl.Ameni:.t. The Jniemalíonal J3everage di.,isionincluded the sales or com~c 3Jld te-A products inEurope, wliíle lhe lnterJ3tionai Bakery dívrnonincluded sales of lYAkciy goodl in EUlUpe Tliccompany's Jntcmatiorul Household and BodyCare dívision included insecticides, perwn3lliygíene products, and cleaning brnnds sold outsideNorth Amenea. 11ie Household and Body Caredi~'Ís:ioß was disooniinued in U110, witli an butshoe care products and cle-dning brnnds divestedduríng the yc.ir. In flSi:.il201 i, Sam l.ecwas nego-tiating with a number of pOknti31 buyers foribe sale of iliese remaining busínesesExhíbít 4prents a 5Uß1f)' of Sara "L's fíiiancíal per-fomiance for 2004 through 2010 diat ¡ndudes

all bU5iieses opernicd iii c.di reporting yetir. Asummary of tlic financial penormani: between2006 and 20 to for the COJJJYdn)"s continuing oper-

ations in 2110 is prcsented in Exhibit 5. Exhibit 6presents sales and oper.iting profits for Sum

Le'smajor busines segments for 20(1) througJi 2010.

North American RetailSam Lee's North American Retail dhisioii hadlímitcd its product lineup to food categories

that offered retaílers high margins, were grow-ing faster than die oyerall índU5try, and showcdconsumer prefercnce for bmnded products ver-sus pnv3te-label brands. In 2010, tIie division h3da number of market-Ie-àding bJ"ànds such as Balll~ark franks, Jimmy Dean sausage, l'liJ1shíre Hirmsmoked sausage, SlatcF-àir com dogs, Sam Lefrozen deserts, ¡ind SenseD sirigle-serving coffce-imikers and coffee pods. Sara Lee was tbe second-i3rgest seller of lunch me-dts and frozn dessertsin Norll) AmeriCß. In 20BO, Sara Le NorthAmerican Retail busines held market sharesof 30 percent in ~moked sausage, 23 pereent in

hot dogs 14 percent in lunch me-dl, 58 percent inbre.ikfast S"dusagc, 22 percent in frozcn desrts,

and 55 perccnt in single-serre coffee TeJl of thecomp-dny's dívisíOJls 12 core products increased

market sliarc in 2010. Between 2008 and 20W,the dh1sion's sales bad grown faster than the salesof any otlier proceed food company, Also, theoperating profit margin for tiie dí"ision improvedfrom 9.2 percent in 2009 to 12.3 pcn:cnt in 20W.Going ínio 201 l, Sam Lee's North AmericanRetail me-Als bUSUiesSUnit was near completionof a state-or-the art meat-slíi:íng plant and theplanned dívestiture of its kosher hot dog bnl1dsand commodity meat b~'¡nes

The division's SenseD síngle-sening coffeepods were 31so the number one brand in NorthAmeric¡t, wiih a 55 percent slmre of the marketfor singJe-sening coffee in 2008. However, the

di,isíon's SenseD coffecmakefS and coffee podshad cxperienced little growth in the Uniied StatC5and achíeycd U.S. sales of only $26 millon in

2008. SíngJe-senre coJfee accounted for less than

6 percent of the global retail coffee market in2009, but was expected to iiicrse to 8.5 percent

of industry sales by 2013.

North American Fresh BakerySaraLe's cntI)' ínto the fresh bakel)' busÍJesin 2002 had prodm.'ed phenomenal results, withits siles incrsing fTOm $91 mi1lon :ín 2003 to

$2.1 biJJon in 2008. In 2010, Sara Lee was thebel-sellng bmnd of packaged bread sold in theUnited States with an 8.3 peTcelt markt share.Arnold's, Nature's O\'f, and PepperidgeFarinwere the tllrec next best-sellng br.nds in U.S.

supermarkets and discount store l1ie North

Ainencan Fresh Bakery dhisíoii held a numberonc ranking ín hot dog and hamburger buns andproduced and markeied the EarthGr.iill brand of

JYâckaged bread. The company's ability to nego-tiate \\ith supermarket buyers to iiicre.ie shelf!iVdCC allocated for íts bakcry products accountedfor mudi of the growth in bakery sales In sever.ilc-.iscs, Sam Lee's fresh bakery dhásion had ben3ble to increase space 011 thc bread aisle fTOm

L5 feet to 4.0 feeL Average weekly sales tripledin stores where Sar.i Lee gained sllelf space. Poor,ecnomic conditions in the United Sl¡;tes Imdslowed the dhision's gron1b in reyenues considcr-ably, but tlie company had been able to improve

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C-25 Part 2 Ons iii CraWri iiOO Es'ClU1ting Stratii

Exhibit 6 Net SaJesand Operating Profits for Sara Lee Corporation's BusinessUnits, 2008-2010 ($ minions)

- - -,. -;' " "2010 2009, . 2008,Net SalesNorthAmencao flela1JNorth Amenca Fres B¡¡eryNort Amenca ftserviæ

Inte.rnational Beii.erage

1nematíonal Baker

Total biiness segmentslmegment sales

Net salesIncome (Loss) frm Continuing 'Operations before Income Taxes

Nort Amenca ReilNorth.Amenca ñes Bakery

North Amenc FoseivInerational BeYerIle1natonal Ba1æ

Total operang segment income

$ 2,818

2,1261,8733.21

785

10,825~$10,793

$ô644

125592~

S 1,09

S 2,7õl S 2,613

2,0 2,0282,092 2,.186

3,00 3,23795 934- -

10,916 10,999~ .~$10,882 $10,99

S 25 .$ 149

2ß 5536 (32)

493 551

(194) (346)

S 614 $ 85

So: PrserJalio by SaIQ Lee,. 2m!l annl f!!rt

opemting income through pndng discipline 3ndProject Accclemic produciiviiy gaii~

North American FoodserviceSaniLec's Nor:h American Foodseo"Íce dí~'Í5ion

marketed and sold products avaíl3bJi to consum-ers in North Americaii supemiarkeas to food seT-"Vice distríbulors such 35 U.S. 1'oods.eivícc andSodexho. North AmencanFoodscrvíce abo soldmeat, bakery, and colfcc produclS to naiiomtlretaurant chains like Sonic, Dunkín' DonutsWafle House, Quíznos, and nurger King. Mostof the dívíSlon's sales were st3Jldard S3m 1.,Jimm)' De-dn, Hillsbjre Fann, B311 l)arl\, andState Faír br.inded products, aJdlOugJi the divi-sjon did customíze meit and baker)' produc15 foJ'its largcs customers. Com~e brand5 :sold to NortliAmenc-.in food scrvíce 3ccounts included DouwcEgbert and Supenor Coffcc, North Amerie-.inFoodsen-icc .llso provided commercial-grade cof-fcc machínes and espreso makes to food sen'ÍceeuomeTs.

The food seo'Íce industry was cxpecied to bea conSldemble gro~~111 opportunity for 133m Lec as

Americans continued to cat 3 liigler pim:enwgc

of meals away from home. However, the reion

that began in late 2007 and resultingrcdul.:cd con-sumer spending tmit continued into 201 0 llad dm-iiitieally decresed spending at retaunints. Eventhough di\'Íion sales had declined from iie-.irly$22 billíon in sales in 2DO& 10 approximatd)'

$L9 biHíon in salC5 in 2010, the di\'Íion liad pre-served lWddæt sliare jn ke)' product categoriC$North American Food5ervce held .1 65 percentmarkt smire in líquid coffcc and teod sold 10 foodservicc cWltomers a 52 percent market sharein pies a 19 peJ"nt maiket share in C'.iKes and

a 2D percell1 share of refrigemierl dough sold 10food senice customers TIie dí.isíon alo oper-

ated a route sales coffee busines and dístríbuteda number of low-margn sauce and dreings sold

to re:taumllI5 that were both slated for dive:titure.Saru Le's food senice dÍ\'Íon had benefited

from the innovations developed by Sam Lee's

ret.tí1 di~'ÍsioßS since the food sen'íce trends mir-rored those in the grocery industry. For exam-ple, preliced deli meats that were inteJlded to

S3tÍ5fy consumers' desire for convenience alsomade sense for food servíce accounts. Food ser-vice customers had found that it was more co51-

eJleclÏve and more sanitary to purchase pre1íccd

( .RJehat~ LIael:~"p~n;Orial COpy)

Case 16 S¡¡m U-C WJJlwmJ in 2'11: lìas lis RcilcndwDI."1t Sb;ategy Becn S!J~C:C5flJD?

me-.it thaH to purchase bulk Jie'.it for re:laumntemployccs 10 slice. Sara L~'C's oC$rt and lYàk-er; bmnds like Sam l. Bistro Collectí01I, and

Chef l)jerre also bCJiefited from iJlIlOValions de~cl-oped for consumers

International BeverageSam :L's Interm.ltioiial lkvcragce bi.ínessíncluded te-.i and coffcc products marketed inEurope Australia, NcW" ~land, and Bn.tjI.

The streJ)gth of tJiecompaliy's colfee braiius-

which íllduded DouwcEgbert:s Maison du Café,Marcílla, and Senseo-Jnade it the leadcr in relaíJsales of coffee in the Neiherlands Belgium, Hun-gary, Denmark, and Brazíl in 20W. S3r-.i Le'scoffee hmnds werc milked second in retail cof-fee sales in Francc and Spain hi 2010. -I1le com-pany was 31s0 die number one seller of coffee tofood sen'Íi: customers in the Uniied States theNetherlands. Belgium, Hungary, Dimm3Tk, ¡IOU

Norway jn 20UtTIie global retail coffee market was expeed

to grow from .$51 MliOJi in 2009 to $62 bíllOJlín 2013, with ínSl3Jll coffee rel3il sales pmjeciedto incJ"sc from $19.6 MJíon to $23.6 bílion,

esreso expecici to grow from $4.3 biJJon in2009 to $9.9 bi1loß iii 2013, and single-$rvin1?

coffee pods expected to ilicrC3 1rom 52.9 bílJOJI

to $53 bíJloJl between 2009 anu 20J3. Rclail

sales of traditiomil ro3st and ground coff.'Cwereprojeced to dL'Clíne from $243 biJJon in 2009 to$23.5 bitlon in 2ul3. 1n 2010, Sar3Le's Semeosingle-sening coffeeniaken were the be:-$Jliig

bmiid of síngle-sn'iiig co1feemacllJJIC5 in Europe,witb 3 40 percent markei share, 3nd the saJei of itscom~e pods liad im:re-.ised from about L5,OOO Ionsin 2004 io approximately 28,O¡)f) tons in 2009. Thecompany launched nine new Senseo coireemakermodels iii 2009 and expanded its iiiieup of single-sen'Íug coffees to include l.'OR Espreso cap-sules :iOREspreso c-..p.sules were compatible\.,th NC511c's Ne:rcso esprcso makcrs, whichwere the second-best-sellíng bmud of singlc-serveCOffeeJmlker iii Europe, with .1 27 percent marketshare in 2009.

International BakerySam Le'slnteniational Bakery d h'Íí Oil pnmanlyconsisted of the Bimbo brand of fn."!ll, frozen, and

CM255

refrigemted bred produi:ts. Bimbo fre:h bre.iôwas sold iii Spain and accounted for 63 percenlof divisíoJl salC5; Bimbo frozcn bJ"d was soldO1)ly in Australia and accounted for 12 perceiit ofdívisioJI sales; and Bimbo refTigemted bre-..d soldin France accounted 25 perccnl of division salesBimbo was the market 1e.ider among p-dckagcdbreads sold in Spain in 2010, \.'Íth a 37 percentmarket share-pnvate-label bmnds collccliveJyranked as the second-be-sdJing packaged brc-..din Spain. Evcn thoug.h nimbo was the bcst-sellngbmnd 01' packaged hre.id in Spain, llic dccp long-term economic reion in Spain, which includedaii unemployment rate hig.icr thaIJ 20 percenl,had caused dh'jsíon sales declines 3!ld operaliiig.losses every year since 2007. TIie dí~'Íion had metwil1i limited SUCCC marketing packaged bre-..din European countries outside of Sp3in bcc'diseof a consumer preference for fresb-lmked bre-.id.Sara Lchoped to improvc financial performanccwithin the dí~;sioJl br iiitrodui:íiig new prod-ui:lS, .idopting an cveryday 10\, pncing :str.tegyand increasing bakery capaciiy utilization from58 perccnt in 2009 to more than 80 percent inWi 1 and beyond. Jiicrsed capadty utilíztioJlwoUld be achieved througli the sale or closing ofuiiderutilíz facilities

International Household &Body Care~kim Lee's lntemationaJ HOUSellOld & Hod)' Careunit's Kiwi bmnd was the numbeT onc slioe c-.irebmnd worldwide, n'Íth distributioJ) in 200 coun-tries and a global market :share of 3l percent in2008. Sanex was the number one brand of batliand shower products in Denmark, Sp3in, andFrdm:e, and Ambi I)ur was the bcst-sellng airfrehener ín the Netherlands and Spain and

the trurd best-sllíng air freshener bmnd in theUnited Kingdom, Italy, and Francc. The divisíonalso included runOU5 illeccide brands sold pri-

marily in India, Malay:sia, Spain, and FranceIn 20D9, Sam Lee announce its intention 10

dives its cnlire Houseliold and Body Care blJ1-nes Dunng 2010, the eomp-.in.)' sold its house-l101d insecicides busness in India to GodæjConsumer ProduC15 Ltd. forf185 milion and its

AmbiPur air care busínes toProccr & Gamblefor £320. Alo dunng f15cal 2010, Sara Leeagreed to sellíts gJolY.il body ,,-arc and European

( R!ii~âî'd. 9o()~s!erso,na\,ePRY)

C-2.~ Part 2 Cms ífl Cra!ìíø¡ am EJæ¡I!:ng Stratii'gy

detergents busíJl~ to Unilever Jor€l.275 hillOlLTJle tml15lclÍoIl was expected to dose by theend of the 2010 c-.lleJidar year. The sale of theeomp-duy's rem3ining illSeaidde brands to

S. C. Johnson and Son fore 1535millon was alsoexpeted to dose by the end of the 2010 calendaryear. The compan)' had identifíed sevcml poten-tía buyers for the remaínder of irs Housholdand ßody Care unit, wllk1i included Kiwi shoeC"dfC producis sold intcmatiomdl)' and Endust

and Ty-D-13oJ cleaning products sold in the Asia-

Pacific region. Amdj'sts believed tll3t Sara Leecould expect $300 miJlon to $400 miJJon fromtlie sale of Kiwi The amounl Saralee mightreceive for the Endust 3ßd Ty-D;ßol bmnds wasles definite.

EXPECTATIONS INEARLY 2011Sara Lee's top maruigcment beliiwcd tliar thecompany's restructured business lineup and cor-pomte stmlcgy inítiatives-both those plannedand 1lioseundeT waj'-would delí~'er strongincrc-.iscs in sliarcholder v3Jue in 20J land 2fJ2.Sam :L's iiitenm CL~O, Marccl Smíts, expected

-ENDNOTES

that the eompan)"s divestiture of its Householdand Body Care busincs~ thc repurch3Se of$360 miJJoii of shares of common stock in 201 1,and cumulath'e Project Accc1emte benefits of$350 millíon to S400 iniJlon expected by 2012

would lead to improvements in e-drniiigs per:share of $0.15 to $û20.1n addition, the companyplanned to retíUclufC the corpomte functioll of

its lntcmatíonal Be¥erage and BakeI) busiliC$C$to e:iminaic 390 positioll and reduce overhe-.id by

£30 millíon by f15cal 2013. Thc comp-Any intcndedfor most of its grO\~111 to come from the furtherdevelopment and grO\~1li of its premium brandssuch as L' OR Espreso and Senseo as well 3S itsmarkt-leading hrands líke Ball Parl, HíUsbíre

Farm, Jimmy Dca", and SamLcc. TIie com-pany also expected that an increed emphasis onwellnes and nutríiíon would allow it to increHsesales of its me-dt and bakery product in NorthAmerica and Europe The company e.xpected 10cOluain growth in opemting expense througli acOJllínued empmisís on cffdency, focusing on its

most promÍ5ng markets, and by reducing in¥en-tories Smits and his chief lieutenants believed

that tI1C company was fully c.l)Y.ible of deliver-ing :signifieant gaíll in shareholder value .a thesearch continued for a permancJlt CEO.

· Sara Le press ieieae, Feuary,a, 2O.., Saia Le press ieleases on Feuary ,a,20, and Febr"uary 25.2.,

~ Sara Le pre ieleas AlJ~a, 20,· Sara Le press ieleas OCob 26, 20,

~ Sara l. pres ielese, NOllmbr 14, 20.

§Sara Le press ¡releae, Noveml 24:200,"Sara Le 1is201O-K leporLfl Saia Le, press ielea, Ju ZT, 2D

" Ja Sasse -i Sara Le i. Harm iiIts S1vYs; BusínestWo/o Selemr1lL20,pAa,

John E. Gamble The Universty of Alabama · 2017-12-14 · Arthur A. Thompson The Universty of Alabama In February 2005, Brenda ßan~ Sara Lee Corpomtion's newly appointed prCiídeßt

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