(By Balaseshan) Dean Foods Co. (NYSE: DF), which operates a food and beverage company, said it has agreed to sell its Morningstar Foods division for $1.45 billion to Canada's Saputo Inc. (TSE: SAP).
Dean Foods said it will use substantially all of the net proceeds from the sale of Morningstar to significantly reduce outstanding debt, resulting in a stronger balance sheet and increased flexibility to execute against its strategies for core dairy business.
As a result of this transaction, Dean Foods expects to realize $887 million in proceeds, net of taxes and expenses. The company expects to use all net proceeds to retire outstanding term debt under its senior secured credit facility, significantly lowering its leverage and increasing its financial flexibility.
Assuming a fourth quarter close, Dean Foods' management expects its net debt to EBITDA ratio, as defined by its credit agreements, to be below 3.0 times at year end 2012. The agreement has been approved by the company's Board of Directors.
Morningstar Foods is a manufacturer of dairy and non-dairy extended shelf-life ("ESL") and cultured products, including creams and creamers, ice cream mixes, whipping cream, aerosol whipped toppings, iced coffee, half and half, value-added milks, sour cream and cottage cheese.
As a condition of the sale, Dean Foods also entered into an agreement with The WhiteWave Foods Co. (NYSE: WWAV), a controlled subsidiary of the company, whereby WhiteWave will receive $60 million net of taxes as consideration for the termination of an option to purchase plant capacity and property at a Morningstar facility and the sale to Morningstar of certain manufacturing equipment located at another Morningstar plant.
In addition, WhiteWave and Morningstar agreed to modify certain terms of existing intercompany commercial agreements between the two companies.
Evercore Partners acted as the financial advisor to Dean Foods while Skadden, Arps, Slate, Meagher & Flom LLP, and Dechert LLP acted as legal counsel. The transaction is expected to close in late 2012 or early in the first quarter of 2013.
DF is trading up 3.33% at $17.71 on Monday.