Dean Foods Sells Morningstar for $1.45 Billion

Dean Foods (DF) sold Morningstar for $1.45 Billion. “Dean Foods expects to realize $887 million in proceeds, net of taxes and expenses.” It will use all the proceeds to pay down debt. “Dean Foods’ management expects its net debt to EBITDA ratio to be below 3.0x at year end 2012.”

I actually sold my position on DF below $17 at a loss because I got scared of the volatility of WhiteWave. Today, it is up trading at $17.55. I expected them to pay some of the proceeds to pay a special dividend, but it looks like that is not happening. This changes a bit of my valuation on the lower side because Dean gets a low multiple of FCF. 

I expect the stock to trade around this price for a while. I will revisit this stock when they actually distribute the WhiteWave shares to shareholders. 

Disclosure: I do not own Dean.

2 thoughts on “Dean Foods Sells Morningstar for $1.45 Billion

  1. Looks like people took profits in DF today. Personally I feel like this is a little soon, especially considering the Morningstar purchase came in on the high end of estimates. I did not expect/model any distributions to DF shareholders and arrived at a fairly conservative valuation of ~$18.50-$19 with the recently announced Fresh Dairy Direct debt reduction and the current WWAV price of ~$15.50. Does anyone disagree/agree?

    I would love to hear other’s opinions given the recent developments.

    Disclosure: I own currently DF

    • I agree with your valuation. However, the upside is only $1-$2 which does not leave a whole lot of room for error. I would’ve liked them to declare some kind of special dividend with some
      of the proceeds. Even with a $1 to $2 dividend they could have a leverage ratio of around 3.0.

      I will wait for the actual distribution of the shares of WWAV before I get back in DF or if the value of the Fresh Dairy Direct becomes $3/share, I might short out the WWAV portion. Currently,
      it is above $4.

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