* No buyer found, but sources say private equity is
* Dean shares close up 5.5 pct
By Soyoung Kim and Martinne Geller
NEW YORK, Sept 26 Dean Foods Co confirmed
on Wednesday that it is weighing a sale of its Morningstar
division, in a deal that could be worth more than $1 billion and
lead to a break-up of the largest dairy company in the United
The company said it recently decided to explore a
transaction for Morningstar, the smallest of its three segments,
as part of its goal to maximize shareholder value, confirming a
Reuters report earlier on Wednesday that cited unnamed sources.
The company's stock closed up 5.5 percent on the New York
Stock Exchange on Wednesday and was up 81 percent from a year
"We have not yet identified a buyer for Morningstar, but we
know this business possesses an attractive portfolio in a
growing marketplace and a top-notch management team," Dean said
in a statement.
"That said, we will only sell this business if we can do so
in a transaction that maximizes shareholder value and ensures
the future success of the business," the company added.
The company has hired investment bank Evercore Partners Inc
to shop the business to potential buyers and has
attracted interest mostly from private equity firms, people
familiar with the matter said before the company made its
announcement. The sale could fetch more than $1 billion, the
Evercore did not respond to requests for comment.
A separation of Dean Foods would come after similar moves by
Fortune Brands and Sara Lee. Kraft Foods Inc will spin
off its North American grocery business next week and change its
name to Mondelez International.
Given last month's announcement that Dean is spinning off
its WhiteWave segment, Wednesday's news was not surprising,
Stephens Inc analyst Farha Aslam said.
"Dean as a company is right now exploring strategic
alternatives to unlock value. So the fact that they're exploring
this opportunity makes sense to us," Aslam said, calling
Morningstar an attractive business. "It has very solid cash
Dean said it planned to sell 20 percent of WhiteWave in an
initial public offering expected to raise some $300 million, and
then distribute the rest to shareholders. It plans to use
proceeds of the IPO to reduce debt.
Morningstar sells Friendship cottage cheese and private
label dairy products such as creamers, ice cream mix and sour
cream. It supplies a range of foodservice customers such as
Stifel Nicolaus analyst Christopher Growe said it was
"curious" that Dean is looking to sell Morningstar now, since
milk and butterfat prices are expected to rise in the future,
which could hurt the unit's profits.
"The company may find it difficult to find a buyer or
achieve the level of proceeds commensurate with creating
shareholder value," Growe said in a research note.
Growe said possible suitors could include private equity
firms, dairy cooperatives, such as the Dairy Farmers of America,
and strategic buyers such as H.P. Hood.
An industry banker, who declined to be identified by name,
mentioned Treehouse Foods and Michael Foods as possible
H.P. Hood and Michael Foods declined to comment. Treehouse
and Dairy Farmers of America were not immediately available.
Morningstar had net sales of $1.3 billion in 2011, making up
10 percent of Dean's overall sales of $13.1 billion. The
company's debt-to-earnings ratio was 4.64 at the end of 2011,
down from 5.13.
Following a sale of Morningstar and the spin-off of
WhiteWave, Dean would be left with its Fresh Dairy Direct
business. That is its largest business, with annual sales of
$9.6 billion, but it is the most challenged, since selling milk
is a low-margin business.
Costs are dependent on a range of volatile commodities from
fuel to dairy and passing on those costs to consumers is not
easy, since there is little brand loyalty and consumers often
choose the cheapest brand.
In 2011, the company took a $1.9 billion charge to write
down goodwill in the dairy business, which it had built up
through acquisitions over the years. Falling demand and prices
over several years had hurt the value of that business.
Dean shares closed up 84 cents, or 5.5 percent, at $16.23 on