Saputo Buys Dairy Crest; Is Dean Next?

April 18, 2019
Dean's market cap is just $200 million.

Saputo Inc. in April completed its acquisition of British processor Dairy Crest Group Plc, while rumors circulated that the Canadian dairy company could be looking next at Dean Foods.

Saputo, based in Montreal, paid CDN $1.7 billion (US$1.13 billion) in cash for Dairy Crest, which manufactures and markets cheese, butters, spreads and oils under brands such as Cathedral City, Clover, Country Life and Frylight, as well as value-added dairy ingredients. Dairy Crest employs approximately 1,100 people in seven locations across the United Kingdom.

For the 12 months ended March 31, 2018, Dairy Crest had revenues of approximately CDN $796 million and profit after tax of about CDN $260 million (which includes exceptional items).

Dean Foods would be a different story. While it is far and away the leading milk processor in the U.S. – one estimate is one-third of all fluid milk in the U.S. carries a Dean brand – milk consumption has been on a decades-long decline in the U.S.

Dean's sales have been stuck at about $7.8 billion for at least three years now, and it ended 2018 with a loss of $327 million. Its stock price once eclipsed $40 a share (early 2007) but closed this April 18 at $2.12, making its market capitalization just under $200 million. The company carries $887 million in debt.

Dean Food shares perked up this week after a report by Canadian newspaper The Globe and Mail that Saputo could be looking at acquiring the company. The two are familiar: Saputo in 2012 bought Dean's Morningstar Foods division, which makes dairy and non-dairy extended shelf-life (ESL) and cultured products, for US$1.45 billion.

One report also called Saputo a potential bidder for Kraft Heinz's Breakstone sour cream and cottage cheese business.

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