Sara Lee to Buy No. 2 Bakery Earthgrains

Sara Lee Corp. said it will buy No. 2 U.S. bakery Earthgrains Co. for about $1.7 billion in cash, extending Sara Lee’s baking operations into fresh breads and refrigerated doughs.

In the largest acquisition in its history, Sara Lee said it will pay $40.25 in cash for each share of St. Louis-based Earthgrains, or more than a 50% premium over its closing price Friday, and will assume $1.1 billion in debt. Earthgrains shares soared $13.82 to $39.82, and Sara Lee shares rose 55 cents to $19.49, both on the New York Stock Exchange.

Sara Lee, whose bakery unit last year had global sales of $1 billion, said the acquisition would quadruple its annual bakery sales. The Chicago-based company also would gain Earthgrains’ distribution system, which it would use to extend markets for its namesake baked goods. Sara Lee’s many other brands range from Ball Park hot dogs to Hanes underwear.

Separately, Earthgrains said it expects to report earnings of 34 cents a share for the fiscal first quarter, better than the 28-cent consensus estimate of analysts.