Consumer Brands, Fast Food On Buyout Menu

A number of familiar consumer names are being shopped around as 2011 gets underway as sellers hope brand recognition plus a healing economy will bring higher bids.

Among the companies up for sale are Sara Lee, Warner Music, Arby’s Restaurants, A&W Restaurants, and Pep Boys, according to reporting by sister news service Reuters, while buyout shops in the hunt for one or more include Bain Capital and Kohlberg, Kravis Roberts & Co.

The largest company being peddled is Sara Lee, the meat and beverage firm whose brands include Ball Park Franks and Senseo coffee. Bids for the company include one by Apollo Global Management, Bain Capital and TPG Capital, but details were not disclosed. A rival offer by Brazilian meat processor JBS was expected, but had not yet been received by the Jan. 21 deadline, a source told Reuters. The public company has a market cap of about $12 billion. Sara Lee, according to Reuters, was also exploring splitting itself up into separate meat and drink units and will probably do so if it doesn’t fetch a price the board is happy with.

Shares of Warner Music surged 30 percent after word hit markets on Jan. 21 that it hired Goldman Sachs to explore a sale. Sources told Reuters that the world’s third-largest music company, home to such bands as Led Zeppelin and Green Day, will wait and see what happens with the possible sale of EMI Group. EMI, which is owned by private-equity firm Terra Firma, is also said to be exploring its options, including a possible sale to Warner Music.

Warner Music’s management has been approached by private equity firm KKR about a possible sale, one source said. KKR was particularly interested in the music company’s Warner/Chappell unit, the source said. Other possible bidders for Warner Music, or at least parts of the company, include Sony/ATV Music Publishing and Universal Music Group, part of Vivendi.

Fast food is also on the buyout menu as Wendy’s said it plans to explore selling its Arby’s chain, while Yum Brands puts its Long John Silver’s and A&W restaurants on the block.

Wendy’s was originally bought by billionaire investor Nelson Peltz’s Triarc in 2008, which then owned the struggling Arby’s chain, but now Wendy’s/Arby’s Group is hoping to undo the merger, and sell the roast beef chain. The company says it wants to focus on its hamburger business, Reuters reported.

Wendy’s was originally bought by Triarc for $2.2 billion, a move that created the world’s third-largest publicly held fast-food chain, but shares in the merged company have slumped, and now the Wendy’s/Arby’s group is worth a combined $2 billion. Analysts said that Arby’s, which has 3,700 locations and is still struggling, could be a tough sale. Oppenheimer analyst Matthew DiFrisco said the unit might bring between $400 million to $600 million. Peltz’s Trian Fund Management LP currently owns 18.3 percent of Wendy’s/Arby’s shares.

Not to be left out, Yum Brands is trying to sell its Long John Silver’s and A&W restaurant chains. Kentucky-based Yum Brands earns the majority of its profits outside the United States. The company said the move is part of a plan to focus more on growing its KFC, Pizza Hut and Taco Bell brands in Asia, Europe and Africa.

A&W and Long John Silver’s make up just 1,600 of the company’s 37,000 restaurant locations. In a statement, Chief Executive Officer David Novak said that the chains it is selling no longer fit into the company’s “long-term growth strategy.”

Analyst Steve West of Stifel Nicholas told Reuters that the two companies would likely end up with a private equity firm and be sold for $100 million to $150 million. He did not predict which investment firms would be the likeliest suitors.

Finally, Manny, Moe & Jack, the ubiquitous stars of the Pep Boys ads, might be working under new owners if the auto parts retailer finds a buyer. The Philadelphia-based chain hired Bank of America to explore a sale, according to Bloomberg. The news service said the company was trying to foster interest among private equity firms like Leonard Green & Partners, Bain Capital and TPG Capital.

One source told Reuters that Barington Capital Group, a hedge fund that owns 4.6 percent of Pep Boys, was trying to push the company into a sale.

In other auction news, Innkeepers, the bankrupt hotel operator, is seeking bids as part of its plan to repay its creditors, the company said. The company reached an agreement with its affiliates for an initial bid valued at $1.14 billion. The proceeds would be used to pay creditors.

Hughes Communications, the broadband satellite services company, hired Barclays Capital to advise it on a possible sale. Apollo owns 57 percent of the public company with a $1.1 billion capitalization. Sources told Reuters the firm had received bids from other private equity firms and satellite operators, but that they could not offer details. A second round of bidding is expected in February.

Interest in Beckman Coulter, the medical testing company, has begun to wane among strategic buyers as the stock price has continued to rise, Reuters reported. The company is valued at more than $5 billion. But that waning interest could help private equity firms clinch the deal, sources said. Final bids are due in February.