Saputo to acquire Dean’s Morningstar for $1.45 billion

Saputo Inc. and Dean Foods announced an agreement in which Canadian-based Saputo will acquire Dean’s subsidiary, Morningstar Foods, LLC for $1.45 billion. 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. It is anticipated to close in late 2012 or early in the first quarter of 2013. 

Morningstar produces a variety of dairy and non-dairy extended shelf-life (ESL) products, including creams and creamers, ice cream mixes, whipping cream, aerosol whipped toppings, iced coffee, half and half, value-added milks, as well as cultured products such as sour cream and cottage cheese. These products are manufactured under a wide array of private labels and owned brands, and are sold nationwide through an internal sales force and independent brokers. Morningstar serves the needs of retailers, national quick-serve restaurant chains, grocery stores, mass merchandisers and distributors across the United States. Morningstar has approximately 2,000 employees and operates 10 manufacturing facilities located in nine states.

Saputo said the transaction is on a debt-free basis and will be financed through a newly committed bank loan. 

For the 12 months ending Sept. 30, 2012, Morningstar had revenues of about $1.6 billion ($ Canadian), and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) of approximately $153 million ($ Canadian). The transaction will be treated as an asset transaction for tax purposes. The net purchase price represents for Saputo Inc. a multiple of 7.9 times Morningstar’s EBITDA.

Saputo expects the transaction to result in immediate earnings. The combined business of Saputo and Morningstar for the 12 months ending Sept. 30, 2012, on a pro forma basis – and taking into account interest on the new bank loan – would have had approximately $8.6 billion of revenues; $1.0 billion of EBITDA;  and $563 million of net earnings (all $ Canadian).

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

According to a Saputo press release, the acquisition of Morningstar will complement the activities of the Saputo Dairy Products Division (USA). Through this acquisition, Saputo will benefit from Morningstar’s national manufacturing and distribution footprint and will optimize coast-to-coast service. This transaction will expand product offering to customers in the United States and broaden the range of Saputo’s future acquisition opportunities.

Gregg Engles, Dean chair, 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. By joining Saputo, we believe Morningstar will be well positioned for continuing success and future growth."

As a result of this transaction, Dean Foods expects to realize $887 million ($ U.S.) in proceeds, net of taxes and expenses. It 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.

"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 CEO. “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 condition of the sale, Dean also entered into an agreement with The WhiteWave Foods Company, a controlled subsidiary, whereby 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.