Canada Bread Co. has agreed to pay $120 million in cash to buy Saputo Inc.'s bakery division, which makes Joe Louis and May West snack cakes.
Montreal-based Saputo is primarily a cheese and dairy company with operations throughout Canada, the United States and outside of North America.
It also has a bakery in Quebec, which employs 642 people and produces products under the Vachon brand.
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."
Spokeswoman Sylvia Sicuso said Canada Bread intends to keep the Quebec facility operating.
"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."
Saputo's bakery division generated $139 million in revenues during fiscal 2014, less than two per cent of the company's consolidated revenues.
CIBC analyst Mark Petrie said the sale comes after Saputo tried unsuccessfully to expand their bakery division.
"Ultimately, the divestiture allows them to focus on their priority of being a global dairy company," Petrie said.
Saputo's focus is on diversifying its business globally by making acquisitions in the dairy business, Petrie said. But, he added, the company doesn't need the proceeds from the sale of its bakery business to do so, as the segment makes up only a small fraction of its revenues.
Canada Bread is a former subsidiary of Maple Leaf Foods, 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 Competition Bureau.