Sara Lee to Sell Tobacco Unit for $1.1 Billion

Sara Lee Corp. reached an agreement Tuesday to sell its tobacco unit for $1.1 billion in a deal that analysts said would help polish its image and raise money for planned stock repurchases.

The packaged food products company said Britian’s Imperial Tobacco Group will buy the Netherlands-based unit, Douwe Egberts Van Nelle, which makes tobacco for hand-rolled cigarettes.

“Tobacco is a non-core business for Sara Lee,” said Robert Cummins, an analyst with Schroder & Co.

“Some shareholders have been after them to divest it, not only because they didn’t like the tobacco industry, but because it didn’t fit in with anything they did anyway,” he said. “It could only detract from their image. It’s got to be viewed as a positive move.”

Some analysts said the tobacco unit may have stained an image built largely on Sara Lee’s better-known baked goods.

Janet Bergman, Sara Lee vice president of investor relations, said some potential investors had shied away from buying the company’s shares because of the tobacco unit, even though it represents only a tiny fraction of Sara Lee’s $20 billion in annual sales.

“There were a number of constituencies that for one reason or another were uncomfortable with Sara Lee’s exposure to the tobacco business,” Bergman said.

The company had said in September that it would sell some assets and use the proceeds to buy back about $3 billion of its shares over the next two to three years. Bergman said the divestiture is part of the planned restructuring.

“We have sold a business that was not a core business for Sara Lee,” Bergman said. “It was a low-growth business, and our strategy is to try to get out of those businesses. We did so at a very good price, and we will use the proceeds from that to invest either in buying our stock or in other higher-growth opportunities.”

Sara Lee shares edged up 94 cents to close at $62.94 on the New York Stock Exchange.