Multiple bidders expected for Weston Foods

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George Weston Ltd. is hoping for a lineup at the cash register for its bakery business, which churns out well-known brands including Wonder Bread, ACE Bakery and Country Harvest.

A number of North American private equity funds, including unsuccessful bidders for the North American assets of Europe-based Aryzta AG , are expected to take a look at Weston Foods, according to an investment banker who works in the sector. The banker said Thomasville, Ga.-based Flowers Foods Inc. , which has a US$5-billion market capitalization, is also expected to bid for the Canadian company. The Globe and Mail is not naming the banker because the individual is not permitted to discuss potential clients.

The sales process for Weston Foods, expected to be launched in the coming weeks, comes shortly after a deal for another North American bakery business announced earlier this month, which could provide promising signs for the Weston sale. U.S. private equity firm Lindsay Goldberg agreed to buy Switzerland-based Aryzta AG’s North American business for US$850-million. Arytza has 15 facilities in the United States and Canada producing bread and other baked goods. By comparison, Weston Foods has 33 bakery facilities in Canada and the U.S., with roughly 6,000 employees.

Bank of Nova Scotia analyst Patricia Baker estimated on Tuesday that the assets could fetch $1.7-billion to $2.2-billion.

The Arytza sale was a “healthy auction process,” Ms. Baker wrote in a research note on Tuesday, which she suggested could mean that “there are several parties interested in acquiring bakery assets.”

Private equity funds are already players in a consolidating Canadian baking industry. In the past nine months, Montreal-based Champlain Financial Corp. snapped up two Quebec-based bakery chains, Maison Isabelle and Boulangerie-Pâtisserie Dumas, which sells puff pastries, croissants and vol-au-vents across the country.

Mexican multinational Grupo Bimbo, which has bakery operations around the world, would be a natural bidder if it were not for concerns about industry consolidation. George Weston executives are already familiar with the company, having sold Weston’s U.S. bakery business to Grupo Bimbo in 2010 for US$2.5-billion. However, a sale to Bimbo would almost certainly raise competition concerns, since the company already owns competitor Canada Bread, which it purchased from Maple Leaf Foods Inc. in 2014.

The bakery business in Canada is essentially a “duopoly,” said Sylvain Charlebois, senior director of Dalhousie University’s agrifood analytics lab. Especially in high-volume categories, Weston Foods and Canada Bread dominate the majority of the market.

But sales growth is hard-won in the sector, he added. According to Statistics Canada figures, the price of bread in Canada has actually declined slightly in the past five years.

“I suspect margins have been pretty tight at Weston bakeries, because prices have barely moved,” Prof. Charlebois said. “We are expecting prices to go up this year, but we are also expecting input costs [for ingredients such as flour] to rise in the coming years.”

Weston Foods was caught up in a scandal in 2017, when George Weston and Loblaw publicly stated that they had been part of an industry-wide bread price-fixing arrangement from 2001 to 2015. The companies reported the information to the Competition Bureau in 2015, and the investigation is continuing.

Weston Foods also underwent a multiyear transformation program, which was completed last year and included a strategic review of its operations.

Consumer product companies such as bakeries that produce stable cash flow and can be expanded through acquisitions are among the favourite targets for private equity funds, according to a survey published earlier this month by S&P Global Market Intelligence. Technology, health care and consumer product companies were the top three sectors for these fund managers. S&P said: “With an estimated US$1.9-trillion in dry powder globally, a low-interest-rate environment, and promising new opportunities arising in the market, it is likely that the hunt for good assets will continue to be very competitive.”

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