Tags: Dean-Foods | Morningstar | sale | dairy

Dean Foods Confirms It May Sell Morningstar Unit

Wednesday, 26 September 2012 04:29 PM

Dean Foods Co. confirmed on Wednesday that it is weighing a sale of its Morningstar division in what could lead to a break-up of the largest dairy company in the United States.

The company said it recently decided to explore a transaction for Morningstar, the smallest of its three segments, as part of its goal to maximize shareholder value, confirming a Reuters report earlier on Wednesday that cited unnamed sources.

The company's stock closed up 5.5 percent on the New York Stock Exchange.

"We have not yet identified a buyer for Morningstar, but we know this business possesses an attractive portfolio in a growing marketplace and a top-notch management team," Dean Foods said in a statement.

"That said, we will only sell this business if we can do so in a transaction that maximizes shareholder value and ensures the future success of the business," the company added.

The company has hired investment bank Evercore Partners Inc to shop the business to potential buyers and has attracted interest mostly from private equity firms, people familiar with the matter said before the company made its announcement. The sale could fetch more than $1 billion, the people said.

Evercore did not respond to requests for comment.

The news was not surprising, Stephens Inc analyst Farha Aslam said, since Dallas-based Dean last month said it planned to spin off its WhiteWave segment, which sells Silk soy milk and Horizon Organic dairy products.

"Dean as a company is right now exploring strategic alternatives to unlock value. So the fact that they're exploring this opportunity makes sense to us," Aslam said, calling Morningstar an attractive business. "It has very solid cash flow."

Dean has said it plans to sell 20 percent of WhiteWave in an initial public offering, expected to raise some $300 million, and then distribute the rest to shareholders. It plans to use proceeds of the IPO to reduce debt.

Morningstar sells Friendship cottage cheese and private label dairy products such as creamers, ice cream mix and sour cream. It supplies a range of foodservice customers such as restaurant chains.

Morningstar's net sales totaled $1.3 billion in 2011, roughly 10 percent of the company's overall sales last year.

Following a sale of Morningstar and the spin-off of WhiteWave, Dean would be left with its Fresh Dairy Direct business. That is its largest business, but the most challenged, since selling milk is a low-margin business.

Costs are dependent on a range of volatile commodities from fuel to dairy and passing on those costs to consumers is not easy, since there is little brand loyalty and consumers often choose the cheapest brand.

In 2011, the company took a $1.9 billion charge to write down goodwill in the dairy business, which it had built up through acquisitions over the years. Falling demand and prices over several years had hurt the value of that business.

Dean Foods has improved its business recently, after cutting costs and working to offset weakened demand at its core fresh dairy business.

Dean shares closed up 84 cents, or 5.5 percent, at $16.23 on Wednesday.

© 2019 Thomson/Reuters. All rights reserved.

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Dean Foods confirmed on Wednesday that it is weighing a sale of its Morningstar division in what could lead to a break-up of the largest dairy company in the United States.
Wednesday, 26 September 2012 04:29 PM
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