Saputo hopes to increase its share of the US dairy market while reducing its reliance on the stagnated Canadian market through its proposed acquisition of Dean Foods’ Morningstar division.
Speaking with DairyReporter.com, Saputo spokesperson Sandy Vassiadis said that while the takeover represents a “big opportunity for growth” it also signifies a move away from the Canadian market where there is “not much room” for growth.
Earlier this week, the Quebec-based dairy processor revealed that it had entered into an agreement with US dairy giant Dean Foods to buy the firm’s Morningstar business for $1.45bn (€1.1bn).
Morningstar manufactures a variety of private label and branded dairy and non-dairy extended shelf life products, including creams, creamers, ice cream mixes, value-added milk, and cottage cheese. It employs around 2,000 people and operates 10 processing plants across the US.
Saputo believes that the acquisition of Morningstar will complement the activities of its existing US Dairy Products Division, and facilitate its US expansion ambitions.
Opportunity for growth
“It will increase our product offering in the US and allowed us to penetrate a number of new product categories in the US including creams, coffee creamers and value-added milk,” said Vassiadis. “We already offer these products in Canada, but not in the US where we mainly manufacture and market cheese, and dairy ingredients.”
“It is a question of opportunity. In the US, we are the third biggest dairy processor but we only account for about 10% of the market. So this is a big opportunity for growth for us.”
“In Canada, the three major dairy processors hold around 75% of the market, so there is not much more room for growth for us,” she said.
The acquisition, which is subject to closing conditions and regulatory clearance, looks likely to be completed in late 2012 or early 2013.
In the meantime, Saputo intends to continue to pursue its ambitions in the US, Latin America and further afield.
“We have always publically stated our intentions in the US dairy market, but we also have further ambitions in South America, Central American countries such as Mexico, and in Oceania,” said Vassiadis.
In September 2012, Dean Foods confirmed that it was seeking a buyer for its Morningstar business.
Last week, Reuters reported that Saputo was head-to-head with US-based Michael Foods in the race to buy Morningstar from Dean Foods. DairyReporter.com pressed Saputo on the rumours, but the Canadian dairy giant declined to comment.
“I cannot provide any information on the bidding process,” said Vassiadis.
Dean Foods expects to realise $887m (€680m) in proceeds as a result of the proposed sale. In a statement announcing the agreement, Dean Foods CEO Gregg Tanner revealed that the majority of the proceeds will be used to “significantly reduce outstanding debt.”