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Dean Foods Announces Agreement to Sell Morningstar Foods Division to Saputo

December 3, 2012
 
 

Dean Foods will use $887 million in net sale proceeds to significantly reduce outstanding debt. Canada-based Saputo expects to expand product offerings to U.S. customers.

Sources: Dean Foods and Saputo news releases

One the nation’s largest fluid milk processors and distributors, Dean Foods Company, today announced that it has entered into a definitive agreement to sell its Morningstar Foods division to Saputo Inc. for $1.45 billion.

Morningstar Foods is a leading manufacturer of dairy and non-dairy extended shelf-life (“ESL”) and cultured products, including creams and creamers, ice cream mixes, whipping cream, aerosol whipped toppings, iced coffee, half and half, value-added milks, sour cream and cottage cheese. The agreement has been approved by the company’s board of directors.

Canada-based Saputo produces, markets, and distributes a wide array of products of the utmost quality, including cheese, fluid milk, yogurt, dairy ingredients and snack-cakes. Saputo is the 12th largest dairy processor in the world, the largest in Canada, the third largest in Argentina and among the top three cheese producers in the U.S.

Saputo said it expects the transaction to expand product offering to customers in the U.S. and broaden the range of the companys future acquisition opportunities.

Gregg Engles, Chairman of Dean Foods, said, “Morningstar is an attractive business and we believe that it will continue to grow and thrive in Saputo’s portfolio. Today, Morningstar has substantial potential for accelerating growth through new distribution channels and new product categories. I'd like to personally thank the Morningstar team for their contributions to Dean Foods over the past 15 years and wish them well as they move forward under new ownership. By joining Saputo, we believe Morningstar will be well positioned for continuing success and future growth.”

Gregg Tanner, CEO of Dean Foods, added, “Dean Foods will use substantially all of the net proceeds from the sale of Morningstar to significantly reduce outstanding debt, resulting in a stronger balance sheet and increased flexibility to execute against our strategies for our core dairy business. As we noted on our third quarter earnings call, this flexibility increases our ability to sharpen our focus on the conventional dairy business to deliver continued value to our shareholders. As we work to complete this process, I am confident it will be a smooth transition."

As a result of this transaction, Dean Foods expects to realize $887 million in proceeds, net of taxes and expenses. The company expects to use all net proceeds to retire outstanding term debt under its senior secured credit facility, significantly lowering its leverage and increasing its financial flexibility. Assuming a fourth quarter close, Dean Foods’ management expects its net debt to EBITDA ratio, as defined by its credit agreements, to be below 3.0x at year end 2012.

As a condition of the sale, Dean Foods also entered into an agreement with The WhiteWave Foods Company, a controlled subsidiary of the company. As a result of the agreement, WhiteWave will receive $60 million net of taxes as consideration for the termination of an option to purchase plant capacity and property at a Morningstar facility and the sale to Morningstar of certain manufacturing equipment located at another Morningstar plant. In addition, WhiteWave and Morningstar agreed to modify certain terms of existing intercompany commercial agreements between the two companies.

Kevin Yost, President of Morningstar Foods, said, "This is an exciting time for all of us at Morningstar. In recent years, the business has grown significantly faster than the industry, driven by strong execution, new product innovation and consumer trends that favor our products. Our employees and customers continue to be the centerpiece of our company. Our customer-centric business model and a disciplined cost control mindset have enabled our growth and we look forward to the next chapter in Morningstar's evolution."

The transaction is subject to customary closing conditions and regulatory clearances, including expiration or termination of the waiting period under the Hart-Scott-Rodino Act, and is anticipated to close in late 2012 or early in the first quarter of 2013.

Dean Foods is a leading U.S. food and beverage company in the U.S. The company’s Fresh Dairy Direct segment is one of the nation's largest processors and direct-to-store distributors of fluid milk marketed under more than 50 local and regional dairy brands and private labels. Fresh Dairy Direct also distributes ice cream, cultured products, juices, teas, bottled water and other products.

Morningstar Foods is a leading warehouse delivery dairy business that produces and sells traditional and specialty dairy items, including cultured dairy products, ice cream mixes, coffee creamers, aerosol whipped toppings, traditional and value-added milks, and blended iced beverages to retailers and foodservice providers nationwide. Dean Foods also holds a majority interest in The WhiteWave Foods Company, which produces and sells an array of nationally and internationally branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products.

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