1. What is Sara Lee’s corporate strategy? How has its retrenchment strategy changed the nature of its business lineup?
The Sara Lee Corporation decided to sell 8 businesses that had been targeted as non-strategic. They decided to concentrate on the grocery portion of their businesses and also their single serve coffee line because they believed it to be very profitable and to continue to become more profitable as the trend caught on to use single serve coffee machines.
7.What is your overall evaluation of Sara Lee’s retrenchment plan? What evidence and/or reasons support a conclusion that Sara Lee’s shareholders have or have not benefitted from the company’s retrenchment strategy?
I do not think their retrenchment plan has worked out very well. By looking at their financials it seems as if they aren’t earning more revenues or if so it is barely an improvement than before. Some areas are even recording a loss whereas before Sara Lee was earning a profit. In the case it stated that by enacting this plan they could increases shareholder dividends by .20 cents, but it never actually said if they were able to do this. I also think it was not smart for Sara Lee to make their spin off company Hanesbrand Inc. pay the $2.4 billion to them as “dividend” payment because that automatically puts them in debt. The case states that they had to borrow $2.6 billion to be able to even start up and pay Sara Lee which in turn made investors wary of why their credit rating wasn’t very competitive with the other active wear brands.
8.What actions do you recommend that Sara Lee management take to improve the company’s performance and boost shareholder value? Your recommended actions must be supported with convincing, analysis-based arguments.
I believe Sara Lee should rethink what was sold and maybe bring back the most profitable companies. I think them cutting 3-4 companies would have been plenty because even though Sara Lee is doing very well in the breads, bakery, dessert, etc. areas they are missing that crucial factor to put them over the edge. If they don’t want to repurchase any companies then they should market their single serve coffee machine since those sales have been quite stagnant and there is potentially a lot of room for growth. Sara Lee could also bring some of their foreign based products to the U.S. and vice versa since some are doing so well in different areas.
