TORONTO - Canada Bread Co. is expanding its menu by acquiring Saputo Inc.'s bakery division, which makes Jos. Louis and May West snack cakes, for $120 million in cash.
Jean Luc Breton, senior vice-president of supply chain at Canada Bread, said the deal is in line with the company's plans to become more competitive by entering new food categories.
"We are proud to acquire Vachon, the leading snack cake brand in Canada, and add their great brands to our other market leaders like Dempster's and POM," Breton said in an email. "It clearly demonstrates our commitment to win in the market every day by delighting consumers."
Montreal-based Saputo (TSX:SAP) is primarily a cheese and dairy company, with operations throughout Canada, the United States and outside of North America. Its bakery division generated $139 million in revenues in fiscal 2014, less than two per cent of the company's consolidated revenues.
Saputo said in August that its efforts to increase bakery sales in the U.S. lost momentum after a change in ownership at the company's Hostess division, which makes Twinkies.
CIBC analyst Mark Petrie said that after failing to meet growth aspirations for the bakery business, Saputo is shifting its energies towards its core dairy offerings.
"Ultimately, the divestiture allows them to focus on their priority of being a global dairy company," Petrie said.
Saputo, which is the largest cheese and dairy processor in Canada, has said it hopes to offset lower profits in Canada by seeking acquisitions abroad, particularly in the fragmented U.S. market and in Australia, or in new markets such as Brazil where there is a growing middle class.
The company said in June it would consider deals up to $4 billion if the right opportunity presents itself.
However, Petrie noted that the company doesn't need the proceeds from the sale of its bakery business to do so, as it has a strong balance sheet and the snack cakes segment makes up only a small fraction of revenues.
Canada Bread, which was once a former subsidiary of Maple Leaf Foods (TSX:MFI), is now owned by Grupo Bimbo S.A.B of Mexico.
In a statement, Grupo Bimbo said the deal "will position Canada Bread for further growth in the country, complementing its current product portfolio and its distribution and manufacturing footprint."
The acquisition is expected to close in February, subject to approval from the federal Competition Bureau.
Spokeswoman Sylvia Sicuso said Canada Bread intends to keep operating Saputo's Quebec bakery, which employs 642 people.
"The business will run as an independent business unit of Canada Bread," Sicuso said.
"Nothing will change. It will continue to operate as it does today."
In September, Saputo announced plans to close its milk processing plant in Trois-Rivieres, Que., next summer, a move that will affect 61 workers.
The company said the plant couldn't be brought up to the same level as its 25 other Canadian dairy processing plants because it contains outdated equipment.