After Spinning-Off From Dean Foods, WhiteWave Looks Forward to

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After Spinning-Off From Dean Foods Co (DF), The WhiteWave Foods Co (WWAV) Looks Forward to Share Repurchases

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On May 23, 2013, Dean Foods Co (NYSE:DF) completed its long-awaited spin-off of its plant foods division. Known asThe WhiteWave Foods Co (NYSE:WWAV), the company has attracted the attention of professional investors for a variety of reasons. To make matters even more interesting, WhiteWave wasted no time in announcing a fairly large share repurchase authorization that could continue for several quarters. Valued at $150 million, the program could result in the repurchase and cancellation of nearly 5% of the company’s total share float.

It should be noted that the spin-off does not mark the end of the relationship between Dean and WhiteWave. Dean Foods still owns about 20% of its former subsidiary, and the firm’s CEO has explicitly stated that divesting this stake is not an option. As such, Dean has a vested interest in WhiteWave’s long-term performance. Since this situation presents some interesting opportunities, it bears a closer look.

WhiteWave, Dean Foods and the competition

The WhiteWave Foods Co (NYSE:WWAV) and Dean Foods Co (NYSE:DF) operate in a competitive industry that is dominated by a few global conglomerates. Accordingly, many of their closest competitors are significantly larger and enjoy more impressive global distribution networks. Deerfield, Illinois-based Mondelez International Inc (NASDAQ:MDLZ) is representative of this type of competitor.

The discrepancies between Dean, WhiteWave, and Mondelez are immediately apparent. For starters, Mondelez has a market capitalization of nearly $56 billion. This compares with a valuation of just under $2 billion for Dean and a figure of about $3.2 billion for WhiteWave. Mondelez is also more profitable than either of its smaller competitors. Its profit margin of about 7.4% comes on the strength of $35 billion in revenue and $1.8 billion in after-tax earnings. By comparison, Dean Foods managed a margin of about 5.4% on $11.5 billion in revenue. The WhiteWave Foods Co (NYSE:WWAV) turned in a 4.5% profit on total revenue of just under $2.4 billion.

Mondelez does have a substantial amount of debt: Its $18.6 billion obligation sheet dwarfs its cash hoard of $2.9 billion. Fortunately, it can rely on operating cash flow of about $4.4 billion. Dean Foods Co (NYSE:DF) has an even more troubling debt heap. With nearly $1.9 billion in debt and under $80 million in cash, the company will need to do some work to repair its balance sheet. For its part, WhiteWave has debt of $806.5 million and about $57 million in cash. Its operating cash flow of about $180 million is not particularly impressive.

How the spin-off happened

As is often the case in such transactions, the precise terms of this stock-for-stock spin-off were not disclosed until a few days before the date of record. Moreover, this transaction was more complicated than many other spin-offs. Since it involved two classes of stock, it required two separate distribution ratios. In the end, Dean distributed a total of 47.7 million Class A WhiteWave shares and 67.9 million Class B The WhiteWave Foods Co (NYSE:WWAV) shares.

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