Saputo grows with deal for U.S. dairy firm Morningstar from Dean Foods

MONTREAL (CP) — Canadian cheese maker Saputo Inc. is bolstering its position as North America’s second-largest dairy company by pursuing the largest acquisition in its history — a US$1.45 billion deal to buy Morningstar Foods.

The transaction, which will boost revenues by nearly 23 per cent, will see Saputo expand its U.S. operations by adding dairy and non-dairy products to its current operations as a cheese manufacturer, distributor and importer.

The move will effectively replicate the breadth of the Montrealbased company’s current Canadian operations and create a U.S. division of comparable size.

“This is only going to solidify our position as the No. 2 provider of dairy in North America,” CEO Lino Saputo Jr. said in an interview Monday.

Morningstar, a division of industry leader Dean Foods, has about 2,000 employees and 10 manufacturing plants in the United States. It had the equivalent of C$1.6 billion in revenue during the 12 months ended September.

By comparison, Saputo (TSX:SAP) had about $1.7 billion of revenue in its second quarter alone from cheese, dairy and bakery operations in Canada, the United States and other countries.

The transaction, the company said, will immediately add to its earnings. It projects the deal will boost earnings by 11.5 per cent above Saputo’s $2.53 per share in adjusted annual profits, excluding an impairment loss on goodwill.

The combined company will have about $8.6 billion of revenues, $1 billion in EBITDA (earnings before interest, taxes, depreciation and amortization) and $563 million of net earnings.

The acquisition is the largest for Saputo, although the Dairyland deal in 2001 was made when Saputo was a substantially smaller company. It has grown from $485 million in annual sales when it went public in 1997.

Saputo has made four acquisitions in four fiscal years. The most recent, before the Morningstar deal, was in March 2011 — a US$270.5 million deal for Fairmount Cheese Holdings, Inc., the parent company of DCI Cheese Company.