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Last updated: December 3, 2012 9:50 pm
Dean Foods continued with its break-up plans on Monday, agreeing to sell its Morningstar dairy business to Saputo, a Canadian dairy company, for $1.45bn.
Dean had signalled in September that it was seeking to dispose of the unit, which makes cultured dairy products, ice cream mixes, coffee creamers and aerosol whipped toppings. The food and beverage company has been hit by rising commodity costs in the past couple of years and has sought to narrow the focus of its operations. Morningstar Foods is unrelated to MorningStar Farms, a maker of vegetarian foods.
“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,” said Gregg Tanner, Dean Foods’ chief executive.
The sale is the latest effort by Dean to trim its portfolio and work its way out from under a substantial debt burden. The company said it would use the $887m in proceeds – net of taxes and expenses – to de-lever its balance sheet. After the sale, Dean’s ratio of net debt to earnings before interest, tax, depreciation and amortisation will fall below 3 times.
Earlier this year, Dean sold part of its WhiteWave soy and dairy business in a public offering of shares, and it is likely to sell the rest of this unit soon.
Although the private label dairy business has been booming, it does not fit neatly with Dean’s core dairy activities. The company’s fluid dairy products are distributed through a direct store delivery system, while Morningstar products, as well as WhiteWave’s, are sold more to warehouses, restaurants and food-service establishments.
Monday’s deal comes amid a flurry of merger activity in the consumer food industry following ConAgra’s $5bn acquisition of Ralcorp last week.
Dean Foods was advised by Evercore Partners, while Rabobank and Rothschild advised Saputo.
Shares in Dean Foods rose 2.39 per cent to $17.55 in midday trading, and shares in Saputo were up 3 per cent to C$47.45.
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