Dean distributing WhiteWave Shares

Dean Foods (DF) will distribute an “aggregate of 47,686,000 shares of WhiteWave Class A common stock and 67,914,000 shares of WhiteWave Class B (WWAV) common stock on May 23, 2013, the distribution date, as a pro rata dividend on shares of Dean Foods common stock outstanding at the close of business on the record date of May 17, 2013.”

Based on the number of shares outstanding on March 31, “Dean Foods common stock will receive approximately 0.256 shares of WhiteWave Class A common stock and approximately 0.364 shares of WhiteWave Class B common stock in the distribution.”

Based on today’s price of WWAV, that is a distribution of almost $11/share. Dean will keep  34,400,000 shares of WWAV after the distribution, which are worth about $600+ million or $3.2+ based on todays price. However, “Dean Foods expects to dispose of its retained shares of WhiteWave Class A common stock within 18 months of the distribution in one or more debt-for-equity exchanges or other tax-free dispositions.” So, most likely investors are not going to see any dividends from the rest of kept shares.

Invest in WWAV or Dean?

I would continue to stay away from both Dean and WWAV. When I originally wrote Dean being undervalued, I was mistaken about 2 things:

  • Dean was going to distribute all of WWAV shares. If they had distributed all the shares, the stub (what was left over would’ve been pretty cheap).
  • Some of the Morningstar sale proceeds would be distributed to shareholders.

I would assume that WWAV shares would go down initially after the distribution as the new shares flood the market. However, there are two events that might make the shares go higher:

  • Earnings report on May 9th.
  • Rumors about takeover speculation.

Here is the news release on the distribution.

Disclosure: I do not own shares of DF or WWAV

5 thoughts on “Dean distributing WhiteWave Shares

  1. I don’t really see the validity of your points of concern above. The thesis with the DF stub is that it is cheap after subtracting the market value of the WWAV stake. Why does it matter for the valuation if DF keeps say 30% of the stake? So they distribute approx $11 in WWAV shares and keep the rest, it’s still fairly transparent to assign a portion of the remaining value to WWAV and the DF stub. If anything, this should benefit DF holders if institutions bid up WWAV. I thought DF mgmt planned to spin to better organize the two businesses, but also because demand for high-growth WWAV is expected to be strong.

    Fair warning: Long DF.

    • You are right that the valuation does not change whether they keep the stake or distribute it. However, as a investor I feel comfortable if they distribute as much as they can. For example, if they had distributed all of their wwav stake and perhaps some of their Morningstar stake, you would be talking a $15 plus distribution. Thus, there is less of a chance in losing money on the stub. Here, after the distribution the stub will worth $8. I don’t love the stub business. They will make money by cutting more costs. Also, I don’t want them to be under leveraged especially with the current debt market.

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