Dutch food ingredients company CSM has put its bakery supplies unit up for sale to focus on more profitable food and chemical products based on natural ingredients such as sugar.

The world's largest bakery products supplier had come under pressure to restructure and improve its performance as it was hit by weak consumer spending in Europe and North America and soaring prices for ingredients such as wheat and sugar.

Analysts said the disposals could raise up to €1.3 billion ($1.7 billion) and cited as potential buyers Mexico's Grupo Bimbo, the world's largest breadmaker, Switzerland-headquartered speciality baker Aryzta , and Belgian bakery group Puratos, as well as private equity firms.

CSM did not indicate whether it was in talks with potential buyers for the business, which makes muffins and pastries mainly for European and U.S. retailers, but said it expected to have made "significant progress" with the planned divestments by early 2013.

"The divestment is a major announcement for CSM, one that was eventually expected, but clearly not this quickly," SNS Securities said in a research note.

Others said that given the difficult economic conditions in Europe and the United States, and fragile consumer confidence, there was limited scope for growth in the sector except through acquisitions.

"There's not a lot of intrinsic growth in the market," said Robert-Jan Vos, analyst at ABN AMRO, which he said meant there would be "appetite in the industry" to buy CSM's assets.

CSM said proceeds from divesting its European and U.S. bakery supplies business, which has annual revenue of €2.4 billion, will be used to pay down debt, make bolt-on acquisitions, and return funds to shareholders. It has appointed Rothschild as its adviser.

The stock had underperformed the market for months, falling 54% in 2011 against a decline of 12% for the Amsterdam index.

CSM shares dropped a further 10% this year before Monday's announcement.

Muffins and croissants

CSM said it will focus on what it so-called bio-ingredients which are produced when sugar is fermented using bacteria to produce lactic acid.

These in turn are used in the food and chemicals sector including for meat preservation, for cleaning chips in the electronics industry, producing cosmetics, and for making plastics based on lactic acid instead of oil.

CSM, like many food companies, has grappled with soaring costs for coffee, milk, grain, edible oils and packaging over the past 12 to 18 months, and has tried to diminish the impact by passing those increases on to consumers through higher prices and by internal cost cuts.

Prices for wheat, sugar and cocoa, which are key ingredients for CSM's ready-made muffins and croissants, bread and pastry mixes, have surged since early 2010.

It announced a €50 million cost-cutting programme last year, of which €30 million is set for 2012, and said it would cut 500 jobs, or 5% of its total workforce.

Those measures did not prevent the company from swinging to a surprise net loss for 2011, and it said in February it planned to restructure or divest as much as 30€ of its European bakery supplies division this year.

But the continued weak state of the market forced CSM to take much more drastic action and on Monday it said it did not have the financial resources to keep all three of its business divisions.

By divesting its bakery supplies business CSM will lose the bulk of its revenues.

The remaining divisions - Purac and Caravan Ingredients - had combined sales last year of €704 million. Their combined earnings before interest, tax, depreciation and amortisation (EBITDA) - and before central costs and one-off costs - were €123.5 million.

Purac makes lactic acid, used in a range of goods from salad dressings and beverages to household detergents, while Caravan Ingredients produces bakery ingredients such as icings and fillings, emulsifiers, and bakery flavours and colourings.

"We intend CSM to be a focused, bio-based ingredients company, with strong financial performance and exciting growth prospects that should generate attractive total returns for shareholders," chief executive Gerard Hoetmer said.

"While bakery supplies is a well-run business with excellent market positions, its value and prospects would be enhanced under different ownership," he added.