Sara Lee Corporation:
Retrenching to a Narrower Range of Business
Introduction
Sara Lee Corporation was founded in 1939. The company grew by acquisitions. Until 2001, it had acquired more than forty companies. Sales reached $10 billion in 1988, $15 billion in 1994, and $20 billion in 1998. But revenues peaked in 1998, as management struggled to manage the company’s broadly diversified and geographically scattered operations.
In February 2005, Brenda Barnes, Sara Lee’s newly appointed president and CEO, announced a strategic plan to transform Sara Lee into a more tightly focused food, beverage, and household products company. The centerpiece of Barnes’s transformation plan was the divestiture of weak-performing business units and product categories accounting for $8.2 billion in sales (40% of Sara Lee’s annual revenue). Barnes believed that Sara Lee would be better off concentrating its financial and managerial resources on a smaller number of business segments where market prospects were promising and Sara Lee’s brands were well positioned. In its retrenchment initiatives, Sara Lee divested seven business units Direct Selling (US Retail Coffee-except Senseo-, European Apparel-included Sara Lee Courtaulds-, European Nuts and Snacks, US Meat Snacks, European Meat) and spun off Sara Lee Branded Apparel (Hanesbrands).
Sara Lee’s management also estimated that by focusing more on the stronger brands with good growth potential, its revenues would grow to $14 billion in fiscal 2010 and that the company’s operating income margin would increase to at least 12%. In addition, Sara Lee’s executives believed that the retrenchment strategy would generate sufficient cash flows to pay the company’s total debt down to between ...