Good News for Dean Foods- Potential Merger on the Way or Buy Out

Dean Foods Company (DFODQ) OTC is one of the largest milk processors in the United States.

Americans are eating more cheese according to United States Department of Agriculture Economic Research Service. Dean Foods owns some of the largest brands in dairy from cheese to ice cream. They have a lot of great brands consumers are very loyal to.

The U.S. Bankruptcy Court for the Southern District of Texas has entered a final order granting the Company authority to access the full amount of its $850 million in debtor-in-possession (“DIP”) financing.

But milk isn’t all that bad. Cow’s milk provides many important nutrients such as calcium that can help prevent osteoporosis. Cow’s milk is fortified with vitamin D, which can also aid in the prevention osteoporosis and increase bone health. Cow’s milk is a rich source of potassium, which can enhance vasodilation and reduce blood pressure.

With declining milk consumption, dairy farms went out of business. Profit margins were squeezed when the farmers that were able to sustain their businesses charged processors 27% more for raw milk. Dean and Borden’s court documents confirm this affected their profit margins.

Dean Foods was a large supplier of milk for Walmart Inc., NYSE: WMT. Walmart started to manufacture their own milk products reducing their costs- which caused Dean Foods to lose  about a hundred million gallons of milk sales.

The bright spot for Dean Foods is that sales are increasing for other dairy products such as yogurt, cheese, and sour cream. With an excellent product line, Dean Foods could be a good buying opportunity.

Dean Foods is in discussions with the Dairy Farmers of America for a potential sale of all the assets. The company has sought relief under Chapter 11 of the United States Bankruptcy code. The opportunity for a merger is expected to be announced hopefully very soon.
There could also be a merger with China top 1 milk company!

The following table shows the largest shareholders in DEAN FOODS CO COM (DFODQ) for the quarter ended December 31, 2019, listed by holding size. The list represents up to 50 of the largest holders in the company.

BlackRock Fund Advisors 13,511,066 228,888 14.696 09/30
Dimensional Fund Advisors LP 7,260,228 (178,828) 7.897 09/30
The Vanguard Group Inc. 6,315,152 234,741 6.869 09/30
Morgan Stanley & Co. LLC 3,940,323 (3,281,678) 4.286 09/30
Invesco Capital Management LLC 2,870,118 (1,307,271) 3.122 09/30
Smith Graham & Co. Investment 2,687,593 539,793 2.923 09/30
SSgA Funds Management Inc. 2,601,877 18,723 2.830 09/30
Teachers Advisors LLC 2,389,763 (14,600) 2.599 09/30
Credit Suisse Securities (USA) 2,160,763 538,934 2.350 09/30
South Dakota Investment Council 1,179,230 82,830 1.283 09/30
Geode Capital Management LLC 1,114,418 26,531 1.212 09/30
Northern Trust Investments In 1,082,155 (16,903) 1.177 09/30
Goldman Sachs & Co. LLC (Priva 907,045 198,523 0.987 09/30
BMO Asset Management Inc. 792,100 298,141 0.862 09/30
Canada Pension Plan Investment 730,435 0 0.794 09/30
Principal Global Investors LLC 725,444 (10,357) 0.789 09/30
Two Sigma Investments LP 695,659 (542,360) 0.757 09/30
Citigroup Global Markets Inc. 667,784 (62,557) 0.726 09/30
LSV Asset Management 643,609 (783,732) 0.700 09/30
Columbia Management Investment 551,118 (13,932) 0.599 09/30
Two Sigma Advisers LP 527,150 (399,200) 0.573 09/30
Mellon Investments Corp. 492,338 13,985 0.535 09/30
Jacobs Levy Equity Management 460,849 460,849 0.501 09/30
Spark Investment Management LL 445,200 (295,000) 0.484 09/30
Parametric Portfolio Associate 418,695 (185,196) 0.455 09/30
BlackRock Investment Management 412,736 3,882 0.449 09/30
Arnhold LLC 399,170 (124,975) 0.434 09/30
D. E. Shaw & Co. LP 392,821 99,319 0.427 09/30
AJO LP 390,315 (812,776) 0.425 09/30
Morgan Stanley Smith Barney LL 382,763 (4,535) 0.416 09/30
Creative Planning Inc. 369,609 (808,046) 0.402 09/30
Connor Clark & Lunn Investment 359,918 (135,186) 0.391 09/30
GAM Investment Management (Swi 324,003 (28,490) 0.352 09/30
BNY Mellon Investment Adviser 316,633 (3,072) 0.344 09/30
Acadian Asset Management LLC 301,841 (355,823) 0.328 09/30
Rhumbline Advisers LP 299,594 12,919 0.326 09/30
Goldman Sachs Asset Management 283,481 27,399 0.308 09/30
The Bank of New York Mellon Co 245,590 (67,615) 0.267 09/30
Russell Investment Management 237,300 225,314 0.258 09/30
PSP Investments – Public Sector Pension Investment 234,422 56,420 0.255 09/30
Tudor Investment Corp. 217,784 13,195 0.237 09/30
Charles Schwab Investment Mana 217,479 (303,629) 0.237 12/31
Legal & General Investment Man 216,196 0 0.235 09/30
New York State Teachers Retire 214,670 (1,700) 0.233 09/30
Real index Investments Pty Ltd. 202,400 202,400 0.220 09/30
Wilmington Trust Investment Ad 200,065 200,065 0.218 09/30
HRT Financial LLC 177,795 177,795 0.193 09/30
Saba Capital Management LP 167,380 (43,940) 0.182 09/30
TIAA-CREF Investment Management 163,869 (17,802) 0.178 09/30
Wolverine Trading LLC 151,674 29,174 0.165 09/30
13F data provided by: Fact set Research Systems Inc.

Too many institutional investors are invested in DEAN FOODS which give us a good perspective for the confidence of institutional shareholders.

According to the Wall Street Journal, a deal between Dean and DFA would unite two dairy land giants. Dean is the biggest U.S. milk processor by sales, selling $4.8 billion worth in 2018. Dairy Farmers of America estimates that it markets nearly one-third of milk in the U.S., counting Dean as the cooperative’s biggest customer. DFA also runs milk-bottling plants and consumer dairy brands of its own.

Dean Foods has a 1 Billion ice cream business valuation, 1.2 billion Real estate value, and a 1.5 billion Dairy and other brands value. Still, revenue per year comes in at 7 billion. If a buyout occurs the company could reach a 4 billion dollar valuation. After all debt, pension liabilities, 500 million will be left with a $5 stock value. Even If this figure is cut in half, we believe the stock is values at $2.50 cents per share.

 

 

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Some possible scenarios below:

1. Most valuable assets sold to highest bidder (multiple parties)
2. Bought out by larger company or foreign buyer
3. Most or all assets acquired by DFA, merges into DFA with DOJ approval
4. None of the above; dissolves pension plans, sells ice cream business (800M), pays off secured/DFA (350M), partially pays off unsecured (450M), implements POR, emerges as standalone with only spent DIP on its balance sheet (350-400M)

CWEB analyst believes the stock will go over $1 -$3 and gain compliance with the financial markets.

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