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Grupo Bimbo to buy Canada Bread for C$1.83bn

By Kacey Culliney+

12-Feb-2014
Last updated the 12-Feb-2014 at 16:37 GMT

The world's largest bakery company Grupo Bimbo is set to snap up Canada Bread for C$1.83bn - a move that will take the Mexican bread titan into an "attractive" market, Bimbo's CEO says
The world's largest bakery company Grupo Bimbo is set to snap up Canada Bread for C$1.83bn - a move that will take the Mexican bread titan into an "attractive" market, Bimbo's CEO says

Mexican bread titan Grupo Bimbo will dish out C$1.83bn to buy the Canada Bread Company – 90% of which belongs to Maple Leaf Foods.

Maple Leaf has agreed to vote in favor of the transaction to sell Canada Bread whose brands include Dempster’s, Pom, Bon Matin and McGavins. The deal is set to close during the second quarter of 2014.

The sale will see Grupo Bimbo acquire 25 bakeries across Canada, the US and UK, It will also take control of Canada’s largest direct store delivery network that reaches over 41,000 points of sale.

Maple Leaf Foods – the controlling stakeholder of Canada Bread – has been undergoing a seven-year growth project for its bakery segment, set to end in 2015. In October 2013, the company announced that it was considering selling its 90% stake in Canada Bread, which prompted the latter to establish an independent committee to protect the business .

The sale follows “an exhaustive process” undertaken by Maple Leaf Foods in cooperation with the special committee to maximize the value of Canada Bread, Maple said.

Maple Leaf’s president and CEO Michael H. McCain said the sale maximized the value of its investment in Canada Bread and would enable Maple to continue building its leadership in the packaged meats sector. 

'We see great value in buying, building and fixing businesses, not in selling. But sometimes selling a business is the right thing to do…' says Maple Leaf Foods CEO

Speaking today in a conference call for investors, McCain said that the sale of Canada Bread was an “excellent outcome” for the company and Canada Bread.

“I have to say that I’m an operator and an operator first, and as an operator we see great value in buying, building and fixing businesses, not in selling. But sometimes selling a business is the right thing to do… and such is the case here,” he said.

Canada Bread CEO Richard Lan welcomed the acquisition and said the company would benefit from new opportunities generated by Grupo Bimbo’s focus, expertise and resources.

Canada Bread woes…

Last year was not a strong year for Canada Bread as it faced a series of closures in the wake of decline in demand for its products, food inflation and rising costs. In February, it announced the closure of two fresh bakeries in Canada and in April it said it would shut a snack cake facility . In May 2012, the firm also shut two bakeries in the Greater Toronto area.

Company CEO Richard Lan said the 2013 closures formed part of a wider consolidation strategy. “We must adapt to food inflation and rising costs by further lowering our cost structure and improving operating efficiencies,” he said.

Grupo Bimbo strong for acquisitions

Grupo Bimbo, the world’s largest bread maker, has been in financial difficulties over the past few years, reporting profit loss for the past two years due to exchange rates and acquisition fall-out costs. The company bought Sara Lee operations in the US, Spain and Portugal as well as Fargo operations in Argentina in a $959m buyout back in 2011 – an acquisition that left a dent in Bimbo’s financials over the last two years.

However, in Grupo Bimbo’s most recent results, the company looked a little stronger, reporting a net profit surge of 61.7% for Q3 2013 from the previous year. This followed a healthy rise of 4.4% for Q2 2013, which marked the first net profit rise in some time. Net profit in fiscal 2012 had been on a downward trajectory with slumps of 83% in Q3 2012 and 81% in Q4 2012.

In line with finance strengthening, the bread titan announced a heavy US investment strategy dedicated to investing $1bn into growing its market presence by 2015.

Grupo Bimbo can now move into 'attractive' market, CEO says

Speaking of the company’s acquisition of Canada Bread, Bimbo’s chairman of the board and CEO Daniel Servitje said the buy advanced the company’s global growth strategy and moved it into the “attractive” Canadian market.

“Canada Bread brings a remarkable portfolio of market leading brands that complement our global business, as well as a track record of highly profitable performance,” he said.

Canada Bread generates annual sales of C$1.4bn and earnings before interest, tax, depreciation and amortization (EBITDA) of C$185m.

“… Canada Bread will benefit from our focus, expertise and resources and we will endeavour to create new opportunities for Canada Bread’s people, customers and business partners,” Servitje continued.

 The transaction is subject to court and regulatory approval.

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