* Deal seen boosting Saputo earnings immediately
* Sale brings Dean Foods closer to breakup
* Shares of both Dean Foods and Saputo up
(Adds background on ConAgra, adviser, closing share prices)
By Martinne Geller and Allison Martell
NEW YORK/TORONTO, Dec 3 Saputo Inc will
buy Dean Foods Co's Morningstar division for $1.45
billion to widen its product range and increase its U.S.
presence, the Canadian dairy products maker said on Monday.
The Morningstar deal is the second in a week for a maker of
private label foods, or products that stores brand as their own,
which are often popular when consumers' budgets are tight. Last
week, ConAgra Foods Inc said it would buy Ralcorp
Holdings for $5 billion.
The sale of Morningstar, which sells coffee creamers, ice
cream mixes and other dairy products to retailers and
restaurants, will be a big step in the breakup of Dean, which is
spinning off another business into WhiteWave Foods Co.
After the sale of Morningstar and the separation of
WhiteWave, which sells Silk soy milk and Horizon organic milk,
Dallas-based Dean will sell mostly regular milk, which is a
difficult business with declining sales volumes, volatile
commodity costs and slim margins due to intense price
competition from store brands.
Montreal-based Saputo, which has expanded its U.S. cheese
business with several smaller acquisitions, is getting
Morningstar at an attractive price, analysts said.
According to Canaccord Genuity analyst Derek Dley, the deal
price is about eight times Morningstar's operating earnings,
compared with Saputo's own trading multiple of 11.
Dley said more deals could be on the horizon. "I don't think
this acquisition means they're going to stop growing in the U.S.
by any means," he said of the company, which also sells bakery
products, including some Hostess products in Canada.
Saputo and U.S.-based Michael Foods were the frontrunners in
the auction of Morningstar, Reuters reported last week. Other
bidders included Mexican dairy company Grupo Lala and private
equity firm Apollo Global Management LLC.
Saputo said it would finance the purchase through a newly
committed bank loan. It expects the deal to close by the end of
the year and boost its earnings immediately.
Dean plans to use the proceeds of about $887 million net of
taxes and expenses to pay down debt, which it said will give it
more options to sharpen its focus on its conventional dairy
"We believe Dean is moving in the right direction, but we
aren't convinced that it's out of the woods, as numerous
headwinds could throw it off course," said Morningstar analyst
Erin Lash, citing rising milk costs and weak consumer spending.
The new Saputo will have about 12,000 employees and 57
manufacturing plants in five countries.
Evercore Partners advised Dean Foods, while sources familiar
with the matter said Rabobank and Rothschild advised Saputo.
Dean Foods shares closed up 2.3 percent at $17.53 on the New
York Stock Exchange, while Saputo rose 3 percent to C$47.41 in
(Additional reporting by Greg Roumeliotis and Olivia Oran in
New York; Editing by Maureen Bavdek, John Wallace, Nick
Zieminski and Lisa Von Ahn)