ValueAct’s Ubben Works His Latest Magic With Sara Lee

Unlike activist hedge fund managers who love to mix it up publicly, ValueAct’s Jeff Ubben prefers to act behind the scenes with the Sara Lee spinoff.

It would be hard to blame shareholders of most companies if they rooted for Jeff Ubben to join their company’s board of Directors. Afterall, since 2001, the co-founder of San Francisco-based hedge fund ValueAct Capital has served on the Board of 21 companies. Two years after he was named a director, the stocks of those companies were up, on average, 9.69 percent compared with a loss of 3.77 percent for the S&P 500, for an outperformance of nearly 14 percentage points, according to calculations made by FactSet SharkWatch.

Last week, Ubben, who typically owns between a dozen and 20 stocks at a time, seemed to work his magic again when Sara Lee announced a major restructuring last week. Unlike activist hedge fund managers such asThirdPoint’s Dan Loeb, who loves to mix it up publicly with management with direct attacks on their character, Ubben prefers to act behind the scenes and help develop a long-term plan to enhance shareholder value.

Sara Lee, where Ubben has served on the board since August 2008, is a good example. The food company said it would split into two separate companies.

Its North American Retail and North American Foodservice businesses (excluding the North American beverage business) will be spun off, tax-free, into a new public company that will retain the “Sara Lee” name. Its brands include Sara Lee, Jimmy Dean, Ball Park, and Hillshire Farm. The new company would have reported about $4.1 billion in revenue in fiscal 2010.

The yet to be named other company will consist of Sara Lee’s current International Beverage and Bakery businesses, as well as the North American beverage business. Its brands will include Douwe Egberts, Senseo, Pickwick, Maison du Café, L’OR, Café Pilão, Marcilla and Bimbo. This entity would have reported about $4.6 billion in revenue in fiscal 2010 using fiscal 2010 actual exchange rates.

The separation is expected to be completed in early calendar year 2012.

Also as part of the plan, the board of directors intends to declare a $3 per share special dividend, the majority of which will be funded with proceeds from the sale of the company’s North American Fresh Bakery business. The special dividend is expected to be declared and paid in fiscal 2012 and before completion of the spin-off of the two companies.

In February 2010, Sara Lee announced plans to repurchase between $2.5 and $3 billion of stock. After payment of the $3 special dividend in fiscal 2012, the company will have returned a total of $3.5 billion of capital to its shareholders since the revised capital plan was announced.

In addition, Jan Bennink was named a director and executive chairman, replacing Jim Crown, who has served as chairman of the board since May 2010. Crown will continue on the board and will serve as lead independent director.

Bennink has extensive experience in the food industry, most recently, serving as chief executive officer of Royal Numico. He has also held management positions with Groupe Danone, Benckiser Gmbh and Procter & Gamble. He is currently a director of Coca-Cola Enterprises.

Ubben would not discuss any role he may have played in the company’s restructuring. However, he does note that his firm invested in Sara Lee in 2007 and 2008 based on the restructuring opportunity, as the company’s operating margin was almost half of the food industry average. Today, the operating margin is in double-digits, up from the 6-7 percent range.

He also asserts Bennink’s “track record of creating value makes his addition to the team an exciting development.

Although investors so far have not been rewarded from this latest announcement, they are not complaining. Since Ubben joined the board, Sara Lee’s stock is up about 13 percent while the S&P 500 has been flat.