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WhiteWave IPO generates $368 million


Dean Foods sells shares in organic milk division to pay down debt


By MATEUSZ PERKOWSKI


Capital Press


A major dairy products company has spun off its organic milk division, selling shares in the new corporation to pay down some of its massive debt.


Dean Foods of Dallas, Texas, recently sold a 12 percent stake in its Whitewave subsidiary, with the initial public offering generating net proceeds of nearly $368 million.


WhiteWave sells organic milk under the Horizon brand, as well as "soy, almond and coconut milks" and other products.


The money from the IPO, plus $885 million borrowed by WhiteWave, will largely be used to repay Dean Foods' loans, according to financial reports filed with the U.S. Securities and Exchange Commission.


Dean Foods had more than $5.5 billion in long-term debt and other liabilities as of mid-2012, according to its most recent quarterly financial report.


WhiteWave has taken out more debt to pay off some of Dean Foods' loans, but Dean has retained majority control of its former subsidiary, so the company is basically shifting debt around, said Erin Lash, an analyst with the Morningstar research firm.


"We aren't forecasting a major improvement in their leverage," she said.


A spokesman for Dean Foods did not respond to a request for comment from Capital Press.


Debt has long been an "Achilles' heel" that has compounded other problems faced by Dean Foods, Lash said.


The firm has indicated that it plans to sell off a bigger portion of WhiteWave, but it may actually be forced to retain a large position in the new corporation, she said.


The prospect of rising milk costs or increased price competition at the retail level could diminish Dean Foods' profits, threatening to violate financial covenants between the company and its creditors, Lash said.


By holding on to a large stake in WhiteWave, the company would be better able to stabilize its financial position, she said.


In the past, retailers have steeply discounted fluid milk to attract consumers to their stores, harming Dean Foods' sales, Lash said. "Obviously, that is a risk."


The company is also pursuing a sale of its Morningstar Foods division, which sells creamers, ice cream mix and other products, to raise more cash, she said.


"In the long run, they've created a monster that it's hard to maintain profitably," said Mark Kastel, co-founder of the Cornucopia Institute, an organic industry watchdog group and critic of Dean Foods.


The company is stripping off its more profitable assets to generate money but the "core business is very troubled," he said.


Dean Foods was previously separated into three categories: WhiteWave, Morningstar Foods and Fresh Dairy Direct, which is largely devoted to packaging and distributing fluid milk.


The profitability of the fluid milk business depends on paying low prices to dairy farmers, which ultimately endangers the company's supply, said Kastel. "They ran this company in an unsustainable manner."


The recent maneuvering, with WhiteWave selling shares and taking on debt, is "kind of like rearranging the deck chairs on the Titanic," he said.


Though the spin-off was intended to help Dean Foods, the consequences for WhiteWave may turn out to be higher costs, said Lash.


Under Dean Foods' umbrella, WhiteWave had more buying power for packaging and other materials, she said. "Post-IPO, that won't be the case."



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