Saputo to buy Morningstar Foods for $1.45 billion

by Eric Schroeder
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MONTREAL — Saputo Inc. has signed an agreement to acquire Morningstar Foods, L.L.C., a subsidiary of Dallas-based Dean Foods Co., for $1.45 billion. Morningstar Foods manufactures dairy and non-dairy extended shelf-life 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.

Morningstar Foods’ products are manufactured under a variety of private labels and owned brands, and they are sold nationwide through an internal sales force and independent brokers. The company has approximately 2,000 employees and operates 10 manufacturing facilities located in nine states.
For the 12 months ended Sept. 30, Morningstar had revenues of about C$1.6 billion, and earnings before interest, taxes, depreciation, and amortization of approximately C$153 million.

Saputo said the acquisition of Morningstar will complement the activities of its Saputo Dairy Products Division (USA) and will boost its national manufacturing and distribution footprint by optimizing coast-to-coast service. The combined business will have approximately 12,000 employees and 57 manufacturing facilities in five countries.

Gregg Engles, chairman of Dean Foods, said Morningstar should “thrive” in Saputo’s portfolio.

“Today, Morningstar has substantial potential for accelerating growth through new distribution channels and new product categories,” Mr. Engles said. “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, chief executive officer of Dean Foods, said Dean will use substantially all of the net proceeds from the sale of Morningstar to significantly reduce outstanding debt.

“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,” Mr. Tanner said. “As we work to complete this process, I am confident it will be a smooth transition.”

As a result of the transaction, Dean Foods said it 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.

As a condition of the sale, Dean Foods also entered into an agreement with The WhiteWave Foods Co., a controlled subsidiary of Dean Foods, 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.

“This is an exciting time for all of us at Morningstar,” said Kevin Yost, president of Morningstar Foods. “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 expected to close by the end of December.
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