Exclusive: Saputo, Michael Foods vie for Dean Foods unit

NEW YORK Thu Nov 29, 2012 8:57pm GMT

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NEW YORK (Reuters) - Canadian dairy products maker Saputo Inc (SAP.TO) and U.S.-based Michael Foods are competing to buy Dean Foods Co's (DF.N) Morningstar dairy division, people familiar with the matter said, in a deal that could fetch between $1 billion and $1.5 billion.

Saputo and Michael Foods have emerged as frontrunners in the auction as the process reaches a final stage, prevailing over other bidders including Mexican dairy company Grupo Lala and private equity firm Apollo Global Management LLC (APO.N), three people said on Thursday.

Dean Foods, the largest U.S. dairy company, has received final bids for the Morningstar unit and aims to announce a deal in the next few weeks, the people said, asking not to be named because the matter is not public.

Morningstar makes creams, coffee creamers and other dairy products mostly under private label or store brands, and also sells Friendship cottage cheese.

Montreal, Quebec-based Saputo, which has a market value of around $9 billion, was founded as a cheese store in 1954 by Italian immigrant Giuseppe Saputo, and now ranks as one of the world's largest dairy companies selling cheese, baked goods and milk.

Michael Foods is owned by GS Capital Partners, the private equity arm of Goldman Sachs Group (GS.N), and sells egg and dairy products, refrigerated grocery and potato products.

Dean Foods and Apollo declined to comment. Representatives for Saputo, Michael Foods and Grupo Lala did not immediately respond to requests for comment.

In September, Dean Foods confirmed a Reuters report that it was seeking a buyer for Morningstar, a move that could presage a breakup of the largest dairy company in the United States.

The Dallas, Texas-based company also spun off its WhiteWave unit in an initial public offering last month. The spinoff of WhiteWave Foods Co (WWAV.N), which makes Horizon Organic milk and Silk soy milk, and a sale of Morningstar would leave Dean with its Fresh Dairy Direct business, which sells milk under regional and local brands.

Morningstar had net sales of $1.3 billion in 2011 or 10 percent of Dean's overall sales of $13.1 billion.

Fresh Dairy Direct is Dean's largest business, with annual sales of $9.6 billion, but it is the most challenged, since selling milk is a low-margin business.

Dean's costs are dependent on a range of volatile commodities from fuel to dairy and passing on those costs to consumers is not easy, since there is little brand loyalty and consumers often choose the cheapest brand.

(Reporting by Olivia Oran and Soyoung Kim; Additional reporting by Martinne Geller; Editing by Phil Berlowitz)

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