Saputo interested in acquiring Dean Foods, report says

(source)

Dive Brief:

  • Montreal-based dairy company Saputo is reportedly interested in acquiring Dean Foods, according to The Globe and Mail. 
  • Dean Foods, which is the U.S.’s largest milk producer, announced in February it was considering “strategic alternatives to enhance shareholder value.” The options include an outright sale, pursuing a joint venture or merger, shedding assets or continuing the company’s current business plan. The company is carrying $887 million of debt.
  • Saputo is also considered a potential bidder for Kraft Heinz’s sour cream and cottage cheese brand Breakstone’s, according to Seeking Alpha. The company announced in March it was considering selling the brand for around $400 million.

Dive Insight:

As Dean Foods continues to struggle in the U.S. dairy market, companies like Saputo are eyeing the company as a potential revitalization opportunity. Saputo is one of the world’s largest dairy processors, with 62 plants across 40 countries, including the United States. As a geographical neighbor who is familiar with the American market, it makes sense that this company would be keen to take a stronger foothold.

Although the dairy business as a whole has been struggling with a glut of supply and a consumer shift toward non-dairy alternatives such as soy, almond, coconut and oats, Saputo has been able to ride the wave and continue producing dairy products at a profit. In its most recent earnings, the company reported an 18.4% growth in revenues, attributed mainly to recent acquisitions like American natural cheese maker F&A Dairy Products, Inc for $85 million and Murray Goulburn in Australia for $1.3 billion. The earnings report also shows the majority of the company’s earnings and revenue also come from the United States. Part of that revenue is from Saputo’s 2012 acquisition of Dean Foods’ former Morningstar unit, which makes products including coffee creamers and Friendship cottage cheese.

With such a significant amount of success from investments in the American dairy business, it’s no surprise that Saputo wants to snap up Dean Foods — and it will likely be at a good price. Dean Foods, which owns DairyPure and TruMoo, saw its stock plunge nearly 70% in the last year. When its numbers sank, the company closed two milk processing facilities and laid off 207 workers. Earlier in the year, it shuttered three facilities. Dean also terminated more than 100 dairy contracts to curtail how much milk the company was purchasing.

Dean Foods, however, is not the only company piquing Saputo’s interest. The Canadian company is looking into purchasing Kraft Heinz’s Breakstone brand. It recently purchased Europe’s DairyCrest for $1.7 billion.

As Saputo blitzes through acquisitions, it may be a safe assumption to say the company is spreading its net wide in order to capture as many dairy consumers as possible, instead of staying more centralized in a North American market where dairy is struggling. Other North American companies like Mondelez have found success by looking outside of their home markets to capture different demographics who have different tastes.   

At the same time, Saputo should be careful not to stretch itself too thin. The company should also be mindful of the overall dairy market. U.S. non-dairy milk sales were up 61% during the past five years, while dairy milk sales plunged 15% from 2012 to 2017, according to Mintel. So while owning a gigantic market share of dairy will help the bottom line for now by wiping out the competition, it may not be the right path toward long-term sustainability.

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