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A $3.00 Special Dividend (15% Dividend Yield)

Sara Lee Corp (SLE) is planning a $3.00 special dividend in 2012 (see details below).  SLE is trading at $20 per share so a $3.00 special dividend will be a 15% dividend yield.  SLE also pays a quarterly dividend with a yield of 2.3% that will be continued throughout the capital process.

Before special items, Dec-Q EPS of $0.27, exceeds analyst  estimate by $0.04, and is $0.02 above the Capital IQ consensus.  SLE will spin off its int’l beverage business in CY 12 H1, with the  remaining company to be largely packaged meats.  SLE will present a $3/share  special dividend prior to separation. Before special items, analyst raised their  FY 12 (Jun) EPS forecast from continuing operations for pre-split SLE to  $0.93 from $0.89, but are wary of prospective operating risk and forex  headwind.

DETAILS:

Sara Lee Corp. ( SLE) announced that its board of directors has agreed in principle to divide the company into two separate, publicly traded companies. The separation is expected to be completed in early calendar year 2012.  Each company will have leading consumer brands, compelling growth prospects and strong potential to deliver long-term value to shareholders.

Under the plan approved by its board, Sara Lee’s North American Retail and North American Foodservice businesses (excluding the North American beverage business) will be spun off, tax-free, into a new public company that will retain the “Sara Lee” name.  Its leading brands will include Sara Lee, Jimmy Dean, Ball Park, Hillshire Farm, Chef Pierre and State Fair.  The new company would have reported approximately $4.1 billion in revenue in fiscal 2010.

The yet to be named other company will consist of Sara Lee’s current International Beverage and Bakery businesses, as well as the North American beverage business.  Its leading brands will include Douwe Egberts, Senseo, Pickwick, Maison du Café, L’OR, Café Pilão, Marcilla and Bimbo.  This entity would have reported approximately $4.6 billion in revenue in fiscal 2010 using fiscal 2010 actual exchange rates.

Each company is projected to have an investment grade credit profile, a competitive dividend yield, a corporate tax rate of approximately 35% and future financial flexibility with a targeted gross leverage of 2.0x EBITDA.

In conjunction with the planned separation, the board of directors intends to declare a $3.00 per share special dividend on the company’s common stock, the majority of which will be funded with proceeds from the sale of the company’s North American Fresh Bakery business.  The special dividend is expected to be declared and paid in fiscal 2012 and before completion of the spin-off of Sara Lee’s North American Retail and North American Foodservice businesses.

In February 2010, Sara Lee Corp. announced a revised capital plan with intent to repurchase between $2.5 and $3.0 billion of stock.  The company repurchased $500 million of shares in fiscal year 2010, $765 million of shares to date in fiscal 2011 and intends to repurchase an additional $535 million of stock in the remainder of this fiscal year, for a cumulative total of $1.8 billion through the end of fiscal 2011.  After payment of the $3.00 special dividend in fiscal 2012, the company will have returned a total of $3.5 billion of capital to its shareholders since the revised capital plan was announced, and, at this time, does not expect to continue with further share repurchases through the completion of the spin-off.  The company expects to maintain its quarterly dividend through the completion of the separation process.

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