Sun Capital To Buy Sara Lee’s Undergarments –

Typically, when one thinks about Sara Lee Corp., visions of cakes, pies and other tasty confections come to mind. But when Sun Capital Partners ponders Sara Lee, the private equity firm is struck by thoughts of bras and hosiery. Indeed, both intuitions are correct, as Sara Lee is an international purveyor of consumer goods ranging from Ball Park hotdogs to Hanes underwear. And lately the company has been working on streamlining itself by selling off non-core assets.

As such, Sara Lee agreed earlier this month to sell off its European branded apparel business to Boca Raton, Fla.-based Sun Capital for approximately ?100 million ($117 million), plus potential payments based on the future performance of the business. Sun Capital declined to comment on the transaction until its final closing, which is expected to take place sometime in January.

The assets to be sold include Sara Lee’s branded bra and hosiery businesses in France, Germany, Italy, Spain, the U.K. and throughout Eastern Europe, which markets names such as Dim, Playtex, Wonderbra, Abanderado, Nur Die and Unno. In all, these businesses generated nearly $1.2 billion in sales throughout fiscal year 2005, which, for Sara Lee, ended on July 2. Sara Lee will retain no equity interest in the business after the sale closes.

Additional terms of the agreement with Sun Capital see that Sara Lee will receive 49% of the first ?204 million ($239 million) of cash distributed from the business (following the closing of the transaction), and a small amount of proceeds thereafter. Also, Sun Capital will take on approximately ?70 million ($82 million) of pension and related liabilities outside the U.K, while Sara Lee will likely contribute ?62 million ($72.7 million) to fund pension obligations within the U.K.

As an aside, this is not the first time a private equity firm has invested in unmentionables. Just last year, Ares Management acquired Maidenform Brands Inc., a lucrative bra and underwear maker that emerged from bankruptcy in 1999, from Oaktree Capital. That deal saw quick success as the company went public this past July via a $217.5 million IPO. Analysts, however, point out that success might be a little further down the road for the Sara Lee assets than it was in regards to the Ares/Maidenform deal.

“Although Sara Lee is not retaining equity in these brands, [two-thirds] of the sale proceeds depend on their future performance, which has been terrible lately,” says David Nelson, a research analyst for Credit Suisse First Boston, in a note to investors. He adds: Sara Lee’s management “had to write down the value of European branded apparel twice, once for $205 million in [fiscal year 2005] and then for $165 million in Q1 [2006].”

Sara Lee Courtaulds, the U.K.-based division that manufactures private-label clothing for retailers, is not part of this sale, although Sara Lee said it will continue to explore its options with regard to the sale of the that business, too, which generated nearly $560 million in sales in fiscal year 2005.

In February 2005, Sara Lee began executing a multi-year plan to focus more strongly on its food, beverage, and household and body care businesses. As part of this strategy, Sara Lee will seek to drive growth in its key categories via brands such as Ball Park, Douwe Egberts, Hillshire Farm, Jimmy Dean, Kiwi, Sanex, Senseo and its namesake, Sara Lee.

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