Saputo to acquire Dean Foods’ Morningstar division for $1.45bn

Canadian dairy company Saputo has entered into an agreement to acquire Morningstar Foods, a dairy business division of US-based Dean Foods, for $1.45bn.

This deal is a part of Saputo’s plan to strengthen its presence in the US and expand its product range.

Morningstar Foods is a leading producer of dairy, non-dairy extended shelf-life and cultured products such as ice cream mixes, creams and creamers, whipping cream, value-added milks, and cottage cheese.

It has ten production facilities located in nine states, with a total workforce of 2,000.

For the twelve months ended 30 September 2012, Morningstar Foods reported revenues of C$1.6bn ($1.6bn), and earnings before interest, taxes, depreciation, and amortisation (EBITDA) of about C$153m ($154m).

Following the sale, Dean Foods expects to receive $887m in proceeds, net of taxes and expenses.

Dean Foods CEO Gregg Tanner said that the company will use the proceeds from the sale to significantly lower its outstanding debt, which will result in a stronger balance sheet and increased flexibility to focus on 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," Tanner added.

Saputo noted that the acquisition will complement its Dairy Products Division in the US, expand its manufacturing and distribution footprint, and strengthen its future acquisition opportunities.

The combined businesses will have 57 manufacturing plants in five countries, and approximately 12,000 employees.

Saputo expects the deal, which is subject to customary closing conditions and regulatory clearances, to close by the end of December 2012.

The transaction is expected to be immediately accretive to Saputo’s earnings.

Dean Foods, headquartered in Texas, US, has been affected by high debts and lower profit margins over the past few years, and is divesting assets to lower debt.

The company is in the process of spinning off its WhiteWave-Alpro division, which makes organic milk and soy milk.

Following a divestment of Morningstar and the spin-off of WhiteWave, Dean Foods will retain its Fresh Dairy Direct division, a leading processor and direct-to-store distributor of fluid milk in the US.