Company denies negotiations, but sales in Europe have been weak.

The Strauss Group is in an advanced stage of talks for selling all or part of its foreign coffee operations to Sara Lee, TheMarker has learned.

Strauss, run by CEO Gadi Lessin and chairwoman Ofra Strauss, denied the report. It said the group has been in contact with senior officials of the world's leading coffee companies for years, but no talks are currently underway between Strauss and the U.S.-based foodstuffs giant Sara Lee.

However, sources in the know say Strauss is considering various options. One is to sell all its foreign coffee operations except in Brazil. Another possibility is establishing a joint venture for all its foreign coffee operations. A narrower possibility is to establish a joint venture in Brazil only.

However, a cooperative venture in Brazil could upset the Brazilian competition watchdogs, as Sara Lee and Strauss are the leading players in that market.

For several years, Strauss has run its coffee activities separately from its other businesses, which are Sabra salads, its "Israel sector," its water business and ice cream. At least according to the company's financial statements, the coffee operations have been stagnating. The main problem is apparently weakening sales in Europe.

In contrast, activity is expanding in Brazil, which now accounts for half of Strauss' foreign coffee sales.

In the first half of this year, Strauss' operating income from its worldwide coffee operations dropped 16.6% to NIS 78 million, compared to NIS 94 million in the first half of 2010.

Weak in the Balkans

Strauss' financial reports show that net sales of its international coffee division (i.e. excluding Israel ) reached NIS 1.4 billion in the first half of 2011. That included NIS 698 million in Brazil, compared with NIS 609 million in the parallel period of 2010. Sales also rose in the former Soviet Union, to NIS 307 million, compared to NIS 250 million in the first six months of last year.

In contrast, sales in the Balkan countries dropped to NIS 117 million in the first half, from NIS 133 million the year before. In Poland, sales in the first six months of 2011 were NIS 183 million, down from NIS 198 million in the same period of 2010. Strauss noted that its international coffee operations are threatened by other international concerns encroaching on its markets abroad.

Strauss took on the global private equity investment firm TPG Capital as a partner in its overall coffee business (meaning both in Israel and abroad ) with fortuitous timing - just before the outbreak of the global economic crisis. TPG invested $293 million in exchange for a 25.1% stake, and Strauss retained the remaining 74.9%.