Bakery Sale Sparks Loblaw Talk

In what analysts believe may be a prelude to taking the Loblaw Cos. private, George Weston Ltd. last week said it has agreed to sell its U.S. bakery divisions to Grupo Bimbo for $2.5 billion (U.S.). Weston earlier this month completed the sale of its Canadian dairy business to Saputo, raising nearly $400 million. Analysts speculated the newly assembled war chest could go toward buying

TORONTO — In what analysts believe may be a prelude to taking the Loblaw Cos. private, George Weston Ltd. here last week said it has agreed to sell its U.S. bakery divisions to Grupo Bimbo for $2.5 billion (U.S.).

Weston earlier this month completed the sale of its Canadian dairy business to Saputo, raising nearly $400 million. Analysts speculated the newly assembled war chest could go toward buying the 38% of Loblaw that Weston does not already own, and/or making acquisitions of supermarkets to strengthen the struggling Canadian grocery giant.

Weston in a statement last week said it would use the cash “wisely and at the appropriate time.”

Perry Caicco, an analyst at CIBC World Markets, Toronto, said in a research report that speculation over taking Loblaw private was “not unfounded,” but said a public buyout could come down to a “game of chicken” between what Loblaw shareholders may demand and what Weston could afford.

Loblaw's common stock has climbed by more than 12% since Weston acknowledged it was in talks to sell the bakery business earlier this month.

Taking Loblaw private would allow Weston to realize a greater share of the benefits if the lengthy turnaround now under way at Loblaw bears fruit, Caicco said. Empire Cos., the parent company of Loblaw rival Sobeys, pulled off a similar trick — albeit on a smaller scale — in 2007, buying 28% of the company following a costly systems and processes upgrade.

Galen Weston, president and chairman of George Weston Ltd. and also executive chairman of Loblaw, reportedly brought up the potential of using the cash to buy competitors, particularly if and when worsening economic conditions catch up to them. “In such circumstances, cash would be more than king,” Weston was quoted as saying in a Dow Jones report late last week.

Potential candidates for acquisition in Canada include Safeway Canada, controlled by the Pleasanton, Calif.-based retailer, and Overwaitea Food Group, based in British Columbia, analysts have speculated.

Weston is the largest U.S. baker, with brands including Arnold, Brownberry, Entenmann's, Freihofer's, Stroehmann and Thomas'. The deal to sell those units to Mexico City-based Grupo Bimbo is scheduled to close in the first quarter.