Dean Foods Co. (DF) jumped the most since it began trading 16 years ago after its WhiteWave unit, the maker of Silk almond milk, filed to raise $300 million in a U.S. initial public offering.
Dean rose 35 percent to $16.73 at 9:57 a.m. in New York after earlier gaining as much as 38 percent, the most intraday since April 1996. WhiteWave applied to list on the New York Stock Exchange under the symbol WWAV, in said in a regulatory filing yesterday after the market closed. WhiteWave didn’t say how many shares it’s offering or at what price. The $300 million amount is a placeholder used to calculate registration fees and may change.
The proceeds will be used to pay down debt at Dallas-based Dean, according to the filing. Dean said yesterday in a statement that it will own at least 80 percent of WhiteWave’s common stock following the IPO and distribute those shares to its investors at least 180 days after the offering.
Selling 20 percent of WhiteWave allows Dean, the largest U.S. dairy processor, to raise money without taking on more risk and at a time when the Standard & Poor’s 500 Index (SPX) is at a three-month high, Vicki Bryan, a New York-based analyst for Gimme Credit LLC, said yesterday.
“We are surprised by the timing of the proposed transaction as the standalone fresh dairy business will face higher milk price-related headwinds over the next several quarters,” Amit Sharma, a New York-based analyst for BMO Capital Markets, said in a report yesterday.
Dean’s profits have been squeezed in the last two years as a slowing economy, declining milk volumes and lower consumer spending hurt its Fresh Dairy Direct unit, the company’s biggest by sales. The current drought in the U.S. threatens to increase feed and raw milk costs, which also may hurt earnings.
Dean has been asked about the future of WhiteWave during the past two years. In a November 2010 report, analysts at Sanford C. Bernstein said that a sale of WhiteWave could cut Dean’s debt almost in half.
WhiteWave got more than 80 percent of its 2011 sales from North America through plant-based foods and beverages, coffee creamers and premium dairy such as Horizon Organic milk. The company, which also has sales in Europe, stands to benefit as the growth of natural and organic products outpaces the overall food and beverage industry, according to the filing.
Unlike the dairy unit, WhiteWave has offered the company growth through innovation with new products such as coconut milk and flavored coffee creamer. That’s allowed Dean to diversify and offset the volatility of the commodity dairy market, Bryan said.
WhiteWave, to be led by Dean Foods Chief Executive Officer Gregg Engles, saw net sales rise 12 percent last year to $1.92 billion, according to the filing. Net income rose 29 percent to $90.8 million. After the IPO, Gregg Tanner, president of Fresh Fairy Direct and chief supply chain officer at Dean, will be CEO of Dean.
Appaloosa Management LP, founded by the billionaire investor David Tepper, holds 4.4 million Dean shares, or 2.4 percent of the company, according to data compiled by Bloomberg. That’s down from the 13.4 million shares the firm said it owned in a filing on Jan. 7, 2011. That day Dean’s shares closed at $9.89.
JPMorgan Chase & Co., Credit Suisse Group AG and Bank of America Corp. are managing the offering, according to the filing.
Dean also said yesterday that second-quarter profit excluding closing and reorganization costs was 36 cents a share. That beat the 31-cent average of 12 analysts’ estimates compiled by Bloomberg.
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