Dean Best

Deal or no deal: General Mills touted as WhiteWave suitor

By Dean Best | 3 May 2013

WhiteWave owns brands include dairy-alternative line Alpro

WhiteWave owns brands include dairy-alternative line Alpro

Dean Foods has formally given the green light for the spin-off of soy and organic business WhiteWave Foods - and analysts are setting out companies they believe could be interested in the Horizon Organic and Alpro owner.

On Wednesday (1 May), Dean Foods said its board had approved plans to hive off WhiteWave. The announcement was the latest stage in Dean Foods' moves to spin off WhiteWave. In August, it unveiled plans to list 20% of WhiteWave in New York and then distribute the rest of the business to shareholders.

Later this month, some of that stock will be handed over to Dean Foods shareholders. It will retain 19.9% of WhiteWave but expects to offload that stake within the next 18 months via mechanisms like a debt-for-equity swap.

In the meantime, General Mills has been put forward on Wall Street as a potential buyer of WhiteWave.

"We believe this could pave the way for an acquisition of WhiteWave, and it could be particularly attractive to General Mills, given the latter's struggling US yoghurt business and previous experience with 8th Continent soy milk," Sanford Bernstein analyst Alexia Howard wrote in a note to clients.

General Mills and agribusiness DuPont sold their 8th Continent venture in 2008. Its US yoghurt business centres on Yoplait, to which it has owned the local licence since the 1970s but in which it acquired a worldwide controlling stake in 2011. There has been concern among some analysts about the performance of General Mills' yoghurt business for over a year and, despite investment in production and NPD, the company faces stiff competition from Chobani and Danone. Hence, some argue, General Mills could be interested in the adjacent categories of organic dairy and dairy alternatives. The company, unsurprisingly, refuses to comment.

"General Mills' US yoghurt business is currently struggling under pressure from more successful Greek yogurt brands," Howard said yesterday. "[It] is also familiar with soy beverages given its historical experience with 8th Continent soy milk. "WhiteWave has achieved a 10% CAGR for sales growth over the past three years and a 20% CAGR for EBIT growth. Its powerful Horizon Organic and Silk plant-based beverage brands have driven the bulk of this growth, flanked by International Delight creamers and iced-coffee, the Alpro soy dessert business in Europe and Land O'Lakes creamers. We believe that this concentrated brand portfolio, which is well-aligned with the emerging consumer interest in organic dairy products and plant-based beverages."

WhiteWave had proved a jewel in Dean Foods' portfolio and analysts had long questioned the dairy giant about whether it would spin off the business. The value-added nature of brands like Alpro stood out against Dean Foods' broader lower-margin milk business.

Morningstar analyst Erin Lash said WhiteWave had proven Dean Foods' fastest-growing business and today she reiterated her belief the business could prove an attractive target for multinationals - and not just General Mills. She cited Nestle and Danone has other potential suitors.

Howard agrees there could be rival interest. "It is also possible that other multinational food and beverage companies could express interest in such a dynamic business, unless valuation multiples rise to the lofty levels seen by other health-and-wellness oriented companies," she said today.

Danone sees the US as an attractive market, often calling the country an "emerging market" for yoghurt. However, its recent deal-making has been in true emerging markets like Morocco, India and Russia. WhiteWave could prove pricey for the French food giant should there be a lot of interest. Danone could decide to keep its powder dry and focus resources on building its buoyant US yoghurt business and turning around its struggling European dairy operations.

WhiteWave does not seem an obvious fit for Nestle. The world's largest food manufacturer is focusing on expanding in emerging markets and, although some could argue WhiteWave's soy and organic business could meet a second aim of expanding into healthier categories, that assertion is not water-tight. Nestle's ambitions in health and wellness seem centred on its Nestle Heath Science unit; a soy and organic business seems of lesser value in comparison. Whether Nestle would be interested in a brand like Alpro, where the opportunity to add value appears limited, is open to question.

However, as with any spin, the companies left or created become the subject of speculation. WhiteWave is no different. And, at the moment, General Mills appears top of the lists of some on Wall Street.

Sectors: Dairy, Mergers & acquisitions, Natural & organic

Companies: General Mills, Dean Foods, Danone, WhiteWave Foods, Nestle, DuPont, Yoplait, Chobani

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