The WhiteWave Foods Company: Carve-Out By Dean Foods Fails To Create Value

| About: WhiteWave Foods (WWAV)

The WhiteWave Foods Company (NYSE:WWAV) made its public debut on Friday, October 26th. Shares of the consumer packaged and beverage company ended their first day with losses of 1.0% at $16.84 per share.

The Public Offering

WhiteWave Foods is a leading consumer packaged food and beverage company focused on high-growth product categories aligned with emerging consumer trends. The company manufactures and distributes plant-based foods, beverages, coffee creamers and dairy products in North America and Europe.

WhiteWave's leading brands including Silk, International Delight and Horizon Organic have leading positions in the United States, while Alpro is a leading brand in Europe.

WhiteWave sold 23.0 million shares for $17 a piece. WhiteWave raised $391 million in gross proceeds in the offering process. Another 150 million shares remain in hands of Dean Foods (DF) the previous owners of the assets. Based on the offer price of $17.00, the food company is valued at $2.9 billion.

The offering is quite a success. The offer price was set above the preliminary $14.00-$16.00 price range set by the firm and its bankers. All shares were sold by the company.

In total, 100% of WhiteWave's shares outstanding were offered. At Friday's closing price of $16.84 per share, the firm is valued at $2.91 billion.

The major banks that brought the company public were J.P. Morgan, Morgan Stanley, Credit Suisse, Bank of America/Merrill Lynch, Barclays and Wells Fargo, among others.


The WhiteWave Foods company owns premium brands in growth categories in the natural and organic food sector. The company aims to develop innovative and great-tasting products, which have nutritional benefits not found in traditional offerings.

The company reported annual revenues of $2.03 billion for 2011, up 11.2% on the year. The company reported a net income $90.8 million, up 29.1% on the year. Income attributable to WWF's shareholders totaled $107.4 million.

Revenues for the first six months of 2012 rose 13.4% to $1.11 billion. Net income rose 33.8% to $57.7 million.

WhiteWave will contribute up to $282 million of net proceeds to repay obligations to Dean Foods. Any remaining net proceeds are used to repay amounts outstanding under current senior credit facilities. Based on the $282 million payment to Dean Foods, and given the estimated $350 million in net proceeds from the offering, the company can pay down some $70 million in debt.

The company operates with $41.4 million in cash and equivalents and another $885 million in short and long term debt, for a net debt position of $844 million. The net debt position will fall to an estimated $770 million based on the successful offering resulting in additional proceeds to pay off debt.

Based on a full year revenue estimate of $2.3 billion, the market values the firm at 1.3 times annual revenues. Net income could come in at $125 million, valuing the firm at 23 times annual earnings.

Investment Thesis

As noted above, the offering of WhiteWave Foods company is quite a success. Shares opened at a high of $19 per share on Friday and ended the day with modest losses of 1.0% at $16.84 per share. As such, shares are still trading some 12.3% above the midpoint of the initially guided price range.

The company intends to retain any future earnings and does not intend to pay a dividend in the short term.

The sentiment around the offering has been relatively good. Shares were offered above the preliminary price range, and the size of the offering was increased to 23 million shares. Shares opened up higher on the first trading day, to end with modest losses.

Shares of Dean Foods ended Friday's trading session with losses of 10.9%. Shares moved in line with the share price of the WhiteWave, and indicates that shareholders are not too happy with the spin-off. The plunge was partially caused by a bearish report from analysts of Stifel Nicolaus who downgraded the stock. Dean Foods continues to hold a 88% stake in WhiteWave.

I think shares are fairly valued, but investors should not see WhiteWave as a completely independent company. Dean continues to hold a majority stake in the company, and the company does not pay a dividend. On the other hand, the company has strong brands in leading growth categories of the food and beverage industry.

I remain on the sidelines given these factors mentioned above.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.