Saputo to expand U.S. reach with processor Morningstar

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Montreal dairy processing giant Saputo has moved to expand its U.S. specialty dairy footprint through a US$1.45 billion deal for a piece of Dean Foods’ portfolio.

Saputo on Monday announced it will buy Dean’s subsidiary Morningstar Foods, which makes dairy and non-dairy extended shelf-life (ESL) products such as creams and creamers, ice cream mixes, whipping cream, aerosol whipped toppings, iced coffee, half-and-half, value-added milks, sour cream and cottage cheese at 10 plants in nine U.S. states.

Morningstar came to Dean by way of Suiza Foods, which bought Morningstar in 1997 before buying Dean Foods and assuming that company’s name in 2001.

Morningstar sells its wares under various owned brands and private labels; it supplies retailers, national quick-serve restaurant chains, grocery stores, mass merchandisers and distributors across the U.S. In its fiscal year ending Sept. 30, Morningstar’s gross sales ran at about C$1.6 billion.

"In recent years, (Morningstar’s) business has grown significantly faster than the industry, driven by strong execution, new product innovation and consumer trends that favour our products," subsidiary president Kevin Yost said in Dean Foods’ separate release Monday.

Saputo said it expects the deal for Morningstar to be "immediately accretive to earnings." The combined companies, it said, would have booked about C$8.6 billion in revenues and C$2.82 of basic earnings per share, up 11.5 per cent from Saputo’s earnings per share alone for the 12 months ending Sept. 30.

Saputo, which will merge Morningstar into its existing U.S. dairy division, said it expected to gain also from Morningstar’s nationwide manufacturing and distribution footprint.

With Morningstar’s product line, Saputo said it expects to expand its product offerings in the U.S., and to "broaden the range of (its) future acquisition opportunities."

"Flexibility"

For its part, Dallas-based Dean said Monday it expects to net about US$887 million in proceeds through the sale of Morningstar, all of which will go to "retire (Dean’s) outstanding term debt under its senior secured credit facility, significantly lowering its leverage and increasing its financial flexibility."

That flexibility "increases our ability to sharpen our focus on the conventional dairy business," Dean CEO Gregg Tanner said Monday.

As a condition of the sale, Dean also made an agreement with one of its other subsidiaries, WhiteWave Foods Co., in which WhiteWave will get US$60 million to compensate for terminating its option to buy plant capacity and property at a Morningstar facility.

The terms of the deal also call for WhiteWave — which completed its own initial public offering earlier this year but remains majority-owned by Dean — to "modify certain terms of existing intercompany commercial agreements" with Morningstar.

Pending U.S. regulatory approval, the sale of Morningstar to Saputo is expected to close by the end of this month or in the first quarter of 2013.