It’s been two years since the old Sara Lee business was broken up, but as the bidding war over Hillshire Brands (NYSE: HSH) proves, there was a lot of pent up value in the diversified consumer goods company and investors are doing better than they would have had it remained whole or been bought out as originally suggested.

It’s obvious all the private equity firms that pitched a buyout to Sara Lee recognized the value that was waiting to be unleashed. In 2010, for instance, KKR offered $12 billion for the company, but was rejected, as was Brazilian meat processor JBS, which bid about $11 billion. A few months later PE firms Apollo Global Management, Bain Capital, and TPG Capital offered to take it private for less than the $13 billion Sara Lee was said to be holding out for . JBS was reported willing to go back to the well with an offer close to that amount, but it never went anywhere.

ALSO READ: Pinnacle Foods in a Pickle Over Buyout Offer

In the end, the prepared meats, cakes, and coffee company chose to divvy itself up, separating into Hillshire, which retained the Sara Lee brands, its namesake meat products, and those of Ball Park hot dogs and Jimmy Dean sausages, and into D.E. Master Blenders, a global coffee house that owns brands such as Senseo and Douwe Egberts. It also paid a $3 per share special dividend worth $1.8 billion.

Earlier this year Mondelez International (NASDAQ: MDLZ) agreed to sell its coffee business to Master Blenders for $5 billion, after which a completely separate company called Jacobs Douwe Egberts would be created to house the two companies’ coffee brands, including Gevalia, Tassimo, and Maxwell House (though this latter only outside of the U.S.) . The combined coffee and tea company would have pro forma revenue in excess of $7 billion annually, making it the second-largest packaged coffee company in the world.

It seemed Hillshire was going to follow the same script after it offered to buy Pinnacle Foods (NYSE: PF) last month for $6.6 billion. It had previously snatched up two smaller packaged foods companies. The move, however, sparked renewed interest in what was likely the real jewel the PE firms had sought early on, the packaged meat business. Pilgrim’s Pride (NASDAQ: PPC), which is 75% owned by JBS, made a $5.6 billion pitch for Hillshire, conditional on it dropping the Pinnacle buyout. JBS is looking to supplement its low-margin business of selling meat to supermarkets with the more profitable branded meat business of its rival.

Of course, that attracted the attention of Tyson Foods (NYSE: TSN), which upped the ante to $6.1 billion on the basis of improving its own standing as the leading protein provider, offering pork, poultry, and beef. Pilgrim’s quickly raised the stakes to $6.6 billion. Taken together — the original dividend, the creation of the new coffee business, and the likely buyout of Hillshire Brands — the original Sara Lee investors should like how the story has played.

Although there was some consternation expressed, such as that offered by Goldman Sachs, that absent M&A events these businesses would stagnate, it turns out that’s just what occurred. Certainly there were no guarantees it would fall out this way, and it’s taken a few years to achieve, but it’s apparent the hidden value that was locked away in Sara Lee is being revealed and in a way private equity itself would probably have chosen. Investors should be satisfied with the payout for their patience.

 

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