NEW YORK--Investors hungry for exposure to the latest
natural-foods business ordered up shares in WhiteWave Foods Co.'s
(WWAV) $391 million IPO, as the stock notched modest gains in its
trading debut.
WhiteWave's stock opened at $19 on the New York Stock Exchange
on Friday, up 12% from its initial public offering offer price of
$17, making the deal the latest natural- and organic-food IPO.
Shares retreated but were still up 2.3% from the offer price, at
$17.50, in recent trading.
WhiteWave--the former natural- and organic-foods unit carved out
from dairy giant Dean Foods Co. (DF)--increased the size of its
offering by three million shares, to 23 million, and pushed the
deal through with a price that was above the expected range of $14
to $16 a share. All told, the value of the deal was 30% higher than
expected.
The company sells Horizon Organic milk and dairy products, Silk
brand soy, almond and coconut milks, and International Delight
flavored coffee creamers in North America. In Europe, which
generates about one-fifth of WhiteWave's sales, the company sells
some of those items under its flagship Alpro and premium Provamel
brands.
WhiteWave-Alpro had long been considered the most valuable part
of Dean Foods. The company's standard dairy products and vast
private-label business are more vulnerable to volatility in
commodity prices and a long-running slowdown in consumers'
appetites for standard dairy products.
Analysts covering Dean Foods are cautiously optimistic about
WhiteWave's potential, forecasting sales growth significantly above
that of Dean.
"Fluid milk profits tend to ebb and flow with commodity costs,"
said Erin Lash, an equity analyst at Morningstar Inc. "WhiteWave
has shown higher growth that's also more consistent," she said.
WhiteWave's business drives greater profit margins than those of
Dean's nonorganic daily products, and organic milk generally
commands an average price per gallon that is greater than its
nonorganic alternatives.
WhiteWave booked net income of $91 million in 2011, up 12% from
a year earlier, on revenue of $1.9 billion. Sales have risen 64%
since the year that ended in 2007, at a compound annual growth rate
of 14%.
"The increasing domestic interest in clean eating and "whole
living" should attract investors to this stable, steady-growth
retailer," said Scott Sweet, senior managing partner at IPO
Boutique, ahead of the listing.
WhiteWave's highest growth is likely to come from its
"plant-based" foods and beverages, meaning its soy, almond and
similar offerings, the company said. In part, this is because of
lower input costs.
Dean Foods' long-time chairman and chief executive, Gregg
Engles, will become CEO of Broomfield, Colo.'s WhiteWave. Mr.
Engles will step down as Dean's CEO but remain chairman there.
Taking the helm at Dean will be Gregg Tanner, president of Dean's
fresh dairy direct division.
In the U.S. and Europe, WhiteWave's sales of plant-based
products enjoyed 8% annualized growth from 2009 to 2011, according
to regulatory filings. Within that niche, almond-based beverages
were the fastest-growing segment, with sales rising 170% on an
annualized basis.
Shares in the natural-foods sector have been hot of late. Shares
of Annie's Inc. (BNNY), which makes products such as organic pasta,
have more than doubled since the company's March IPO.
Shares of Natural Grocers by Vitamin Cottage (NGVC), which
operates health-food stores that sell organic products and dietary
supplements, have climbed by about one-third since their July
IPO.
WhiteWave's brands are big players in the natural-foods space,
with Silk holding a roughly 58% market share, according to
WhiteWave's prospectus, but the market for such products is highly
competitive.
WhiteWave warned in its filing that packaged-foods rivals such
as France's Danone SA (BN.RF, NANOY), Kraft Foods Inc. (KRFT),
Nestle SA (NESN.VX, NSRGY) and General Mills Inc. (GIS) have
significant marketing arsenals to develop their own competing
brands. WhiteWave must also contend with organic packaged-foods
companies such as Hain Celestial Group Inc. (HAIN). Private-label
competitors, meanwhile, stand to undercut WhiteWave on price,
WhiteWave said.
The company also noted it is heavily reliant on a few customers.
WhiteWave's largest customer is Wal-Mart Stores Inc. (WMT), which
accounted for 17% of total net sales in 2011.
WhiteWave will transfer net proceeds from the IPO to Dean Foods.
Separately, in connection with the offering, WhiteWave will take on
about $885 million in new debt, or about three times its 2011
earnings before interest, taxes, depreciation and amortization.
The company's dual-class share structure entitles holders of
Class A shares to one voting right per share, compared with 10 for
each holder of Class B shares. Dean Foods will own none of the
Class A stock and all outstanding shares of Class B common stock,
which will give Dean Foods a roughly 88% stake in the company and
about 99% of the voting power on matters submitted to
shareholders.
J.P. Morgan Chase & Co., Credit Suisse AG and Bank of
America Merrill Lynch served as lead underwriters.
--Kelsey Gee, Marshall Eckblad and Ben Kesling contributed to
this article.
Write to Chris Dieterich at
christopher.dieterich@dowjones.com.
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