WhiteWave rival bid a tough sell, sector advisors say - MergerMarket
* Logical acquirers have tended to shy away from aggressive M&A moves
* General Mills, Nestle may find products most attractive
WhiteWave Foods' (NASDAQ:WWAV) sale to Danone (EPA:BN) carries a rich valuation despite a relatively light premium, dampening the prospects for a rival bid, several sector bankers said.
Paris-based Danone announced its intent to acquire Denver, Colorado-based WhiteWave earlier today for USD 56.25 per share in cash, or a USD 10.1bn implied equity value. The purchase price represents a 24% premium on the target’s 30-day average closing trading price of USD 45.43.
Danone’s offer price values WhiteWave at a 21x forward EBITDA valuation, said three bankers. Given the high valuation, the probability of an interloper emerging is low, they said. A 30% to 35% premium to WhiteWave’s 30-day closing trading price is seen as a logical maximum, though this figure is still a stretch, two of these bankers said.
The third banker and a person briefed on the situation said they did not believe WhiteWave conducted a formal sale process, though a market check would have been conducted by the target ahead of signing a deal with Danone.
Many large strategics in the space have had WhiteWave on their radar screen as one of the few remaining larger fast-growing sector players, the third banker noted. However, most of these players have been reticent to offer a valuation as steep as 21x EBITDA as the returns at this figure are difficult to justify, he said.
Though a takeout of WhiteWave has been talked about in the investment banking community for some time, the business is not on everyone’s wish list, the second banker said. Potential interlopers have to grapple with a steep valuation for a business whose parts may be more attractive than the whole, four bankers said.
For instance, the third banker explained that while WhiteWave has some nice brands in its portfolio, others have faced challenges, and as a result, the company may not be the best fit for the other larger players. Danone, however, is in a unique position of embracing many of the different categories that WhiteWave has a presence in.
Given their product portfolios, the same banker and the fourth banker described the Danone purchase of WhiteWave as a hand-in-glove fit.
Danone’s notable brands include Activia yogurt and Evian and Volvic waters. WhiteWave’s portfolio includes Earthbound Farm produce, Horizon organic milk, Wallaby organic yogurt and plant-based nutrition products brand Vega.
WhiteWave CEO Gregg Engles is a savvy businessman, and likely noticed that the business is priced to perfection and may not be able to achieve the same type of returns a few years down the road, the second banker and the third banker mentioned.
Among the likeliest suitors should a rival bid emerge are Camden, New Jersey-based Campbell Soup Company (NYSE:CPB), Minneapolis-based General Mills (NYSE:GIS), and Battle Creek, Michigan-based Kellogg Company (NYSE:K), three of the bankers noted. Swiss food giant Nestlé (VTX:NESN) is also a contender, the third and fourth bankers said.
Yet, neither Campbell, Kellogg nor General Mills have shown a proclivity for being overly aggressive in their M&A strategy, a fifth banker pointed out.
The second banker noted that of the three General Mills makes the most sense from a product perspective, and that the company could be looking for another growth asset following its USD 820m September 2014 purchase of then-listed Annie’s.
Campbell, in particular, could benefit from synergies on the produce side, as it owns Bolthouse Farms, acquired in 2012 from Madison Dearborn for USD 1.55bn, this banker said. The third banker said while Campbell needs to do “something," a WhiteWave deal would be a bigger acquisition plus fewer synergies.
“A lot of these food companies have a family-owned dynamic to it and we haven’t seen a lot of bidding wars recently for large cap food companies, except, say, Hillshire Brands,” the third banker noted.
Tyson Foods (NYSE:TSN) won the bidding war for Hillshire in 2014 with an all-cash offer that valued the maker of Jimmy Dean sausages at USD 8.55bn, outbidding Pilgrim's Pride (NASDAQ:PPC), which is majority owned by Brazilian meatpacking giant JBS SA.
The Coca-Cola Company (NYSE:KO) and PepsiCo (NYSE:PEP) could also emerge as bidders, though their synergies would be far less than food giants such as General Mills, four of the bankers said. From a distribution perspective, an acquisition by the beverage giants would prove complex, as WhiteWave operates in refrigerated and frozen goods and Coca-Cola and PepsiCo do not, the first and second banker added.
In the wake of the Mondelez International (NASDAQ:MDLZ) unsolicited offer, The Hershey Company's (NYSE:HSY) best defense might be offense, in the case of purchasing a company such as WhiteWave, the third banker mentioned. The company has mulled an acquisition of the business previously, though it is unlikely to “marshal” the resources for such a large purchase right now, he added.
Goldman Sachs was the financial advisor to WhiteWave and Skadden Arps was the legal advisor. Lazard was the financial advisor to Danone and Wachtell, Lipton, Rosen & Katz provided legal advice.
WhiteWave posted USD 3.9bn in revenue in 2015, up from USD 3.4bn in 2014 and USD 2.5bn in 2013. The company has market capitalization of USD 9.9bn.
WhiteWave and Danone declined comment for this story.
