By Amy Guthrie and Judy McKinnon
TORONTO--Mexican baked goods giant Grupo Bimbo SAB looks set to
complete its North American conquest via the purchase of Maple Leaf
Foods Inc.'s Canada Bread Co. business for 1.83 billion Canadian
dollars ($1.66 billion), a move that would immediately convert
Bimbo into a top player in Canada's baked-goods sector.
The chance to absorb a third of Canada's packaged-bread market
was essentially too good to pass up, Bimbo Chief Executive Daniel
Servitje said on a conference call after announcing the deal
Wednesday, calling Canada Bread "one of the single largest
inorganic opportunities" left in North America.
"We will now have a leading presence in the three countries of
the North American region," Mr. Servitje added.
Mexico City-based Bimbo has agreed to pay C$1.65 billion to
Toronto-based Maple Leaf, which owns about 90% of Canada Bread.
Bimbo is offering minority shareholders the same buyout price, or
C$72 a share. Canada Bread shares closed at C$67.26 in Toronto
Tuesday.
For Maple Leaf, the sale marks the end of an exploration of
strategic options for its bakery business launched last October.
"This transaction maximizes the value of our investment in Canada
Bread and focuses Maple Leaf on building its leadership in the
consumer packaged-meats business, " said Michael H. McCain, Maple
Leaf's president and chief executive.
The deal is subject to court and regulatory approvals, including
approvals from Canada's Competition Bureau and Canada's industry
ministry. Bimbo expects the purchase to close before July of this
year.
Maple Leaf said the continuing restructuring of its
prepared-meats business "significantly impacted" earnings in 2013,
particularly fourth-quarter results. Its bakery business, however,
performed at record levels, the company said.
Bimbo, which has grown through a number of major acquisitions in
recent years, said it has cash holdings and credit arrangements in
place to fund the purchase. In 2008, Bimbo paid about $2.4 billion
for Canada's George Weston Ltd.'s eastern U.S. bread business,
complementing its 2002 purchase of George Weston's western U.S.
baked-goods operations. Then, in 2011, Bimbo bought the fresh
bakery operations of Sara Lee for $709 million.
Despite the aggressive expansion into the U.S., which is now
Bimbo's biggest market by sales, Bimbo remains heavily reliant on
its profitable Mexican business. During the 12 months through
September, Mexico supplied 63% of Bimbo's $1.3 billion in earnings
before interest, taxes, depreciation and amortization, or Ebitda,
even though Mexico accounted for just 39% of Bimbo's $13.8 billion
in revenue. On a pro-forma basis, Canada Bread would have accounted
for $1.4 billion, or 9%, of Bimbo's 12-month sales and 13% of
Ebitda, the company said.
Bimbo officials welcomed the chance to diversify the company's
revenue via Canada Bread, which boasted an attractive
mid-single-digit growth rate in packaged bread sales in recent
years. Mexico enacted an 8% tax on high-calorie snacks this year
that could curb Bimbo's sales of sweet treats in its home
market.
Canada Bread operates 25 facilities in Canada, the U.S. and the
U.K. and together with George Weston's Weston Foods division
dominates the Canadian packaged bread market. Mr. Servitje said the
company fits into Bimbo's "strategic sweet spot" for acquisitions,
because of its leading position throughout Canada and strong brand
loyalty. He also praised the company's deep ties with Canadian
retailers, know-how in the frozen bread business and potential for
research and development of new products.
Canada Bread and George Weston each control close to a third of
the Canadian packaged-bread market. Canada's overall baked-goods
market is worth about $40 billion, according to Euromonitor
International.
Bimbo's entry into to the Canadian market isn't likely to shake
the competitive landscape for George Weston, analysts said. "It's a
duopoly, " said Robert Gibson, an analyst with Octagon Capital.
"They [Bimbo] just made a huge acquisition. They don't want to go
into a price war right now. They want to keep things as they are
and gets some benefits [from the deal]."
While Bimbo is likely to put some "fresh air" into Canada Bread
through new investments and product offerings, Canada is a
saturated bread market that will make it tough for industry players
to eke out market share gains, said Svetlana Uduslivaia, senior
research analyst at Euromonitor International.
Corrections & Amplifications: An earlier version of this
story incorrectly stated the year Sara Lee was bought and the
amount paid for it.
David George-Cosh and Anthony Harrup contributed to this
article.
Write to Amy Guthrie at amy.guthrie@wsj.com and Judy McKinnon at
judy.mckinnon@wsj.com
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