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Saputo agrees to buy Dean Foods’ Morningstar business in $1.45bn deal

By Mark Astley , 03-Dec-2012

Canadian dairy giant Saputo has entered into an agreement with Dean Foods to acquire the US firm’s Morningstar business for $1.45bn (€1.1bn).

Dean Foods’ Morningstar division manufactures a variety of private label and branded dairy and non-dairy extended shelf life products, including creams, creamers, ice cream mixes, value-added milk and cottage cheese.

It employs approximately 2,000 employees and operates 10 manufacturing facilities across the US. The proposed combined business will operate 57 manufacturing facilities in five countries and employ approximately 12,000 people.

Saputo hopes to expand its presence in the US market through the acquisition of Morningstar, which it believes will complement the activities of its existing US Dairy Products Division.

The deal, which is subject to closing conditions and regulatory clearance, looks likely to be completed in late 2012 or early 2013.

Expand US product offering

“The acquisition of Morningstar will complement the activities of the Saputo Dairy Products Division (USA),” said Saputo’s announcement.

“Through this acquisition, Saputo will benefit from Morningstar’s national manufacturing and distribution footprint and will optimise coast-to-coast service. This transaction will expand product offering to customers in the United States and broaden the range of Saputo’s future acquisition opportunities.”

Saputo expects the deal, which will be financed through a newly-committed bank loan, to have an “immediate” impact on earnings.

“Saputo Inc. expects the transaction to be immediately accretive to earnings,” the statement added.

According to Saputo, the combined business of Saputo and Morningstar for the twelve months ended 30 September 2012 would have recorded revenue of approximately CDN$8.6bn ($8.65bn, €6.6bn) and net earnings of CDN$563m ($566m, €434m).

Significantly reduce debts

Commenting on the deal, Dean Foods chairman Gregg Engles said that Morningstar will be “well positioned for continuing success and future growth.”

“Morningstar is an attractive business and we believe that it will continue to grow and thrive in Saputo’s portfolio. Today, Morningstar has substantial potential for accelerating growth through new distribution channels and new product categories,” said Engles.

Dean Foods expects to realised $887m (€680m) in proceeds as a result of the proposed sale, of which it intends to use the majority to “significantly reduce outstanding debt.”

“Dean Foods will use substantially all of the net proceeds from the sale of Morningstar to significantly reduce outstanding debt, resulting in a stronger balance sheet and increased flexibility to execute against our strategies for our core dairy business,” said Dean Foods CEO, Gregg Tanner.

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