Dean valuation – Post Spin-off

I have gotten a lot of emails about the big Dean Foods (DF) drop. Here is my valuation:

Value from WhiteWave(WWAV) IPO: $2.95 Billion ($390 million from IPO proceeds + 150 million shares@17) 

So rest of Dean is essentially free at the current price of around $16 and change. 

Take into account:

  • Morningstar sale will be soon for $1 to $1.5 billion based on yesterday’s reports. 
  • Fresh Dairy Direct Segment is the most profitable. Although, they will not get a high multiple.
  • They have $2.5 billion in debt. Debt is made of senior notes and senior credit facility. The credit facility is currently charging less than 3% interest. Senior notes yields are higher, but mature I believe in 2016 and 2018.

My hope is that they don’t pay off the senior credit facility with IPO proceeds because of the low interest expense and if they sell the Morningstar at the range that people are talking about and give back everything to shareholders, this stock is easily worth middle $20s.

I have been buying all the way down to sub $16. My average price should be in the $17.5 range.

I don’t get the price drop today. So let’s see…

Disclosure: I am long DF.