Dean Foods has indicated that it could consider spinning off its WhiteWave-Alpro business as a strategic option that would enable the group to maximise shareholder value.
The US dairy processor’s current share value is more reflective of the troubles the company is facing in its milk business than the value-generating potential of its WhiteWave-Alpro unit, which manufactures branded dairy, soy and plant-based beverages and foods, chairman and CEO Gregg Engles suggested yesterday (22 February).
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Commenting on the possibility of a spin-off, Engles told his audience at the CAGNY investor conference in Florida that one of the main barriers to such a move would be the debt leverage connected to the company’s Fresh Dairy Direct-Morningstar milk business.
“The milk business has clearly been over the last several quarters a much more volatile business than it has been historically. So the biggest constraint today is really on the ability to leverage the milk business as opposed to the WhiteWave business,” Engles said. “We believe that we need to be able to put meaningfully less leverage on the milk business as a stand-alone entity than on the combined companies because it won’t have the predictable and relatively robust levels of cash-flow from WhiteWave to support it in a spun or separated context.”
The “determining factor” would be the level of leverage that could be put on the milk business in order to affect a spin, Engles continued. This would need to be “significantly below” the debt level of around US$4bn that exists today, possibly around four times debt to EBTIDA, he said.
“If our shares don’t adequately reflect the value of WhiteWave – which we are pretty confident they do not – we appreciate the value creation opportunity in the separation and we are going to be examining our valuation and our leverage as we move along that spectrum in order to determine what the right strategic outcome and timing is,” Engles said.
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