Ralcorp (NYSE:RAH) has inked a deal to buy the North American refrigerated dough business from Sara Lee (NYSE:SLE) for $545 million in its ongoing effort to revamp operations as it struggles to keep pace with rising raw material costs.
A leading maker and distributor of dough products in the U.S., the former Sara Lee unit booked sales last year in excess of $300 million. The group employs some 700 people primarily in Texas and Georgia.
Ralcorp CEO Kevin Hunt, who noted the companys excitement about the deal, said the transaction allows Ralcorp to be a private-brand leader in the $1.8 billion refrigerated dough sector.
The percentage impact of this accretion will be even more significant after the Post Foods separation, as our private-brand earnings base will be smaller, he said.
The company last month revealed plans to sell Post Foods, which is responsible for popular cereal brands such as Honey Bunches of Oats and Raisin Bran. Ralcorp, along with its peers in the food industry, have been forced to raise prices amid climbing raw material costs.
However, many unable to keep pace, have still succumbed to weaker profits. Ralcorp revealed third-quarter earnings of $28.3 million, or 50 cents a share, for the three-month period ended June 30, down 47% from $53 million, or 95 cents a share, in the same quarter last year.
Upon closing the acquisition with Sara Lee, the dough business will be integrated its Ralcorps frozen bakery products division. The company said it intends to fund the transaction using short-term debt that will be repaid with the proceeds from the Post Foods separation.
Pending customary closing conditions and regulatory approvals, the company expects the acquisitions to close in 60 to 90 days.