London, March 27 - Consumer goods group Sara Lee Corp is likely to have to split up its Europe-based household and personal care division if it wants to sell off the business, which has been valued at over $2 billion.
The U.S.-based company is examining the sale of the unit, according to industry sources, but because it has such a wide range of products, from Sanex deodorants to Kiwi shoe polish, analysts say it will have to break up the unit to sell it.
Chief Executive Brenda Barnes has declined to comment on whether the division is for sale, but told Reuters last week that major future investment would go behind its food and drink business rather than the household and personal care side.
"It's not a huge growth platform for new categories, new geographies. That's not the priority," Barnes said.
"So coffee and tea is what I would consider the place where we are significantly putting more investment and the U.S. food business," she told the Reuters Food and Agriculture Summit in Chicago last week.
A host of possible buyers have been mentioned by analysts, such as Reckitt Benckiser and Unilever in Europe, and in the U.S. Colgate-Palmolive Co, S.C. Johnson & Son Inc and even Procter and Gamble Co, but all have declined or not been available for comment.
"As we look through the portfolio we can only see a break-up of the assets, we cannot see or think of anyone who might be interested in the whole -- except for private equity and they are struggling to be competitive right now," said Credit Suisse analyst Charlie Mills.
The broker expects the division to have around $2 billion of annual sales in the current year and underlying operating profit, or EBITDA, of $300 million, and with a 7 times multiple this puts a value on the unit at $2.1 billion.
It describes the business as a "hodge podge" of brands covering air care, body care, insecticides and shoe care, so potential buyers will be reluctant to buy the lot, and in addition could face anti-trust hurdles in some European markets.
Although 65 percent of sales are in Europe, there are also significant businesses in Asia with nearly 20 percent of sales in markets like Malaysia, India, Indonesia and the Philippines, with sales also in Africa, America, East Europe and Australia.
Analysts say Reckitt may be interested in air care and insecticides, which make up 20 and 12 percent of the division's sales, while the shoe care market is in decline in many regions and body care is not a big area currently for Reckitt.
The British group already leads the European air care market with a 29 percent share for its Airwick business just ahead of SC Johnson's Glade with 26 percent, so adding Sara Lee's Ambi Pur with 8 percent might cause anti-trust problems for both.
Insecticides might interest Reckitt as it already has the Mortein brand and Sara Lee has Vapona and GoodKnight, analysts said.
They add Unilever would only be interested in body care which accounts for 27 percent of Sara Lee's divisional sales with brands Sanex and Radox, but Unilever is already the world's No 1 in deodorants and a big player in body wash with Dove.
With new Chief Executive Paul Polman looking to revive sales volumes growth, especially in Europe, analysts say an acquisition of a business largely in Europe would not be top of Unilever's priorities.
Of the U.S. groups, analysts say privately-owned SC Johnson, like Reckitt, may be interested in air care and insecticides, and Colgate might look at body care to boost its Palmolive brand.
Most see a disposal as making sense, allowing Sara Lee to focus on its Jimmy Dean and Hillshire Farm processed meats, Douwe Egberts and Senseo coffee, and Sara Lee bread.
"We view a possible disposition as logical allowing management to solely focus on food and beverages and note household and body care likely had few synergies with the rest of the business," said Deutsche Bank analyst Eric Katzman.
Christopher Growe at brokerage Stifel Nicolaus says Sara Lee could get around $2.5 billion for the division and if it used the cash to repurchase shares it would boost earnings per share by $0.20, but if it was used to repay debt would dilute by $0.10.