Canadian dairy products company Saputo Inc. (SAP.TO) said Monday that it has agreed to buy Morningstar Foods LLC, a unit of Dean Foods Co. (DF), for $1.45 billion. Saputo expects the transaction to be immediately accretive to its earnings and enable it to boost its presence in the U.S.
Morningstar Foods is the largest U.S. processor and distributor of milk, creamer, and cultured dairy products. These are marketed under more than 50 local and regional dairy brands, as well as through private labels. Morningstar has about 2,000 employees and operates 10 manufacturing facilities located in nine states.
Dean Foods said in late September that it was exploring the sale of its Morningstar businesses as part of the company's continued evaluation of options to maximize shareholder value. The Morningstar businesses, the company's smallest segment, made up about 10 percent of its total sales.
Saputo noted that the purchase price for the transaction is $1.45 billion on a tax-free basis and will be financed through a newly committed bank loan. The deal is anticipated to close in late 2012 or early in the first quarter of 2013.
For the twelve months ended September 30, 2012, Morningstar had revenues of about C$1.6 billion, and earnings before interest, taxes, depreciation, and amortization or EBITDA of about C$153 million.
The company noted that the acquisition will complement the activities of the Saputo Dairy Products Division USA, which will benefit from Morningstar's national manufacturing as well as distribution footprint and also optimize coast-to-coast service. The combined business will have about 12,000 employees and 57 manufacturing facilities in five countries.
Separately, Dallas, Texas-based Dean Foods said that the deal was approved by its board of directors. The company expects to realize $887 million in proceeds, net of taxes and expenses.
Dean Foods will use substantially all of the net proceeds to reduce its outstanding debt under its senior secured credit facility, enabling it to significantly lower its leverage and increase its financial flexibility.
As a condition of the sale, Dean Foods also entered into an agreement with its controlled subsidiary, WhiteWave Foods Co. (WWAV).
Under the deal, WhiteWave will receive $60 million as consideration for the termination of an option to buy 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 inter-company commercial agreements between the two companies.
In Monday's regular session, DF is currently trading at $17.70, up $0.56 or 3.27 percent on a volume of 151,317 shares.
On the Toronto Stock Exchange, SAP.TO is trading at C$47.41, up C$1.37 or 2.98 percent on a volume of 267,518 shares.
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