Considering WhiteWave (NYSE:WWAV) as a potential activist investor target is a bit off the mark, considering the stock is up 40% over the last two years. However, there is some chatter that WhiteWave could find itself in the cross hairs.
The logical activist that could make a run would be Hudson Executive. The relatively new activist investor has been quietly buying up shares. They own $32 million in shares, which is just under 0.5% of the company. However, they do like to work behind the scenes, refusing to wage proxy battles and working constructively with management.
The possible thesis
If Hudson gets more involved, or even another activist shows up, what's the thesis? By all accounts WhiteWave is due for a buyout - where it'd make a great takeout target for a company looking to get more healthy.
Likely buyers would be other beverage companies Pepsi (NYSE:PEP) and Coca-Cola (NYSE:KO), however, with just a $8 billion market cap - WhiteWave might not be enough to entice either of those large caps, i.e. not enough to move the revenue needle for them.
But there's the potential for a partnership. Note that Coke is no stranger to doing deals to help diversity its sugar soda heavy revenue stream. It owned a stake in Keurig Green Mountain that company was bought out and owns over 15% of Monster (NASDAQ:MNST). Now, another interesting angle is that Coca-Cola FEMSA's (NYSE:KOF) and Coca-Cola's bought of Unilever's Latin American soy-based beverage business. They paid roughly 2x sales. So, Coca-Coal partnering up with one of its bottlers to take on WhiteWave isn't out of the question. Getting WhiteWave bought out for 2x sales would mean a $60 to $65 a share buyout price.
The more likely suitors are other snacks companies that might come a calling, such as Hershey (NYSE:HSY) or General Mills (NYSE:GIS). Recall that General Mills bought organic foods maker Annie's in 2014. The lines of organic milk, plant based alternatives to yogurt and plant based beverages would be complimentary to a company like General Mills.
Why WWAV is enticing
WhiteWave has a suite of products in a very on-trend market right now - healthy and organic. In particular, they're a major player in the natural beverage industry, which has been a fast growing part of the market. There's still a lot of runway for WhiteWave to penetrate households, as the market share of plant based products remains low. A larger company like General Mills could get into a faster growing part of the market, compared to cereals, while also being complimentary and helping WhiteWave penetrate households quicker.
Then there's the whole idea of tackling new geographical areas with non-dairy products, something a larger company would also be able to help with. That's where a larger company with mass scale, such as Pepsi, does have its advantages as a potential acquirer.
In the end, WhiteWave has a leadership position in a fast growing industry. But it's also priced as such - trading at over 40x earnings. The key is you're paying for a growth stock.
The relatively strong price performance and growth make it a tough activist target, other than to push the company into a buyout. Which wouldn't be so bad for a stalling growth company like General Mills. Still, even without the buyout, WhiteWave is one of the few companies in the foods space that I like.
Disclosure: I/we 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.