updated 11/9/2010 5:35:12 PM ET 2010-11-09T22:35:12

Sara Lee Corp. is cutting the apron strings on its struggling North American bread-making business, selling it to Mexican baking giant Grupo Bimbo for $959 million.

The deal makes Grupo Bimbo the largest baker in the U.S. It also marks Sara Lee's last major planned sale of a business line and completes a series of moves to focus on its more-profitable businesses such Hillshire Farms meat and Senseo coffee.

"Sara Lee is indeed a simpler, stronger and a better company," Sara Lee interim CEO Marcel Smits said Tuesday.

Sara Lee, based in Downers Grove, Ill., will still sell its signature frozen cheesecake and deli meats. Grupo Bimbo will have rights to the Sara Lee brand in fresh baked goods globally, excluding Western Europe, Australia and New Zealand.

It adds to Grupo Bimbo's presence as one of the world's largest baking companies. The company, based in Mexico City and traded on the Mexican Stock Exchange, sells brands such as Entenmann's, Tia Rosa and Thomas' baked goods.

Sara Lee's bakery unit has been struggling recently as costs, competition and intense promotions cut into its performance. Analysts said its operating profit margins are well below its peers. And during the most recent fiscal year, the unit's profit was flat and revenue fell more than 5 percent on an adjusted basis to $2.1 billion.

However, the business has strong brand recognition and is the largest bread producer in the U.S. Sara Lee recently raised prices on its products and had said it expected the unit's profitability to gradually improve in 2011.

Grupo Bimbo said it will invest more than $1 billion in the U.S. over the next five years to add bakeries, upgrade existing plants and improve its infrastructure and technology. The deal includes 41 U.S. plants. About 13,000 employees will be transferred.

The acquisition will move Bimbo from its fourth-place ranking in terms of U.S. marketshare to the top spot, according to Ibis World. The deal is expected to close in the first half of 2011.

Sara Lee said the sale frees it to focus on its meats business, which includes Hillshire Farm, Ball Park, Jimmy Dean brands, and its coffee lines. The company said it will also be able to expand through acquisitions, although it would not discuss potential targets.

Company leaders said they plan to speed up a previously announced share repurchase plan as well as a result of the deal.

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Sara Lee has made a series of deals to trim its business. It sold its Ambi Pure air freshener business to Procter & Gamble Co. and its stake in a joint venture in India that makes insecticides. It also has agreed to sell its body care business to Unilever NV and its remaining insecticide business to SC Johnson.

Sara Lee said it is still negotiating to sell some smaller remaining businesses, which include shoe care and its Asia-Pacific cleaning products business, but said this deal marks its last significant sale.

Morningstar analyst Erin Swanson saw the sale of the fresh bakery business was a positive move, ridding the company of what she called its "Achilles heel."

But even with after the sale, Swanson still considers Sara Lee to be a viable takeover target, with potential interest from both strategic and financial suitors.

Sara Lee leaders would not comment on the potential for a buyout, saying only that it was focused on its future growth. The company has reportedly been approached by several private equity firms.

Sara Lee's attractiveness as a buyout target could be enhanced by its lack of a permanent CEO. Former CEO Brenda Barnes stepped down in August to recover from a stroke.

The company said it continues its search for a CEO.

Sara Lee also reported Tuesday that its first-quarter earnings declined, burdened by higher commodity costs and higher marketing spending.

Sara Lee's first-quarter net income fell 32 percent to $192 million, or 29 cents per share, compared with $284 million, or 41 cents per share in the same quarter last year. Adjusted earnings from continuing operations were 13 cents per share. Revenue slipped less than 1 percent to $2.58 billion.

Analysts polled by Thomson Reuters predicted earnings of 17 cents per share on revenue of $2.48 billion. These estimates typically do not include one-time items.

Sara Lee boosted its 2011 earnings outlook, saying it now expects adjusted earnings from continuing operations between 92 cents and 99 cents per share up from 88 cents to 95 cents per share. Analysts forecast 94 cents per share for the year.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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