I have been playing around with Dean Food’s (DF) valuation numbers in my head the last 3 days. My valuation range comes out to around $19.6/share to $23.04/share based on sum of parts valuation.
WhiteWave (WWAV) is worth $2.5 billion or $13.50/share based on that fact that Dean holds 150 million Class B shares. Dean will use the $390 IPO million proceeds to pay down debt. That will be reflected in the lower interest expense in Fresh Dairy Direct Segment. Company has stated that it will distribute the shares “no earlier than 180 days following the closing of the IPO.”
Morningstar is on the selling block. There was a Reuters report this past Thursday that there are multiple suitors for the company and the price tag is $1 billion to $1.5 billion. Let’s assume it gets sold for $1 billion in the worst case and $1.25 billion in the best case. In both cases, let’s assume Dean uses $500 million of the proceeds to pay off debt and the rest to distribute to shareholders. So, shareholders get $500 million or 2.70/share to $750 million or $4.05/share.
Fresh Dairy Direct
- Operating Income will be over $400 million in 2012 even with higher commodity prices in 2012. They earned $226 million for the first half of 2012
- Interest Expense. They will have $1.6 billion in debt. $1.13 billion of that will be senior notes and the rest of it will be the senior credit facility.
- Corporate Expense includes things such as non cash share based expense. The company had $210 million corporate expense for the whole company in 2011. So, $150 million is a conservative estimate.
- One time expenses includes such things as litigation expense, facility closing and reorganization costs that they seem to have every year.
- Added $60 million to net income for FCF because they will have less capital expenditure compared to depreciation.
If Fresh Dairy Direct gets a multiple of 5 to 8 based time FCF, the value is $635 million to $1,016 million or $3.4 to $5.49.
Adding all that up, I get a valuation range of $19.6 to $23.04. Obviously there are risks:
- Whitewave share prices could go down. Right now the float is less than 25 million. Once the 150 million Class B Shares come into the market, there could be downward pressure on the price. Also, it is highly valued just like every other healthy food company. However, it does have the good growth.
- Morningstar may not be sold or it may not distribute any of the proceeds if sold. However, there is considerable interest in the company based on the latest reports. The company has a history of increasing shareholder value. Besides the latest spin-off, the company in 2007 gave a $2 billion or $15/share dividend. Also, what else would they do with the proceeds? They will not pay off the senior credit facility fully. It does not make any financial sense.
- Fresh Dairy Direct is a low margin business and is dependent on commodity and fuel prices. However, the company is focused on cutting cost and lowering capital expenditures to increase FCF, and I have valued it conservatively.
Disclosure: I am long Dean.