The WhiteWave Foods (WWAV) Buyout: A Case Study in Spinoffs Done Right

Shares in organic dairy company WhiteWave Foods (WWAV) soared by 18.5 percent on July 7 upon news of an impending buyout. Danone, the French conglomerate, announced their planned acquisition of the Denver-based company for $10 billion in cash. That’s good news for WhiteWave, a company that spun off from its parent company just several years ago.

There’s an ongoing debate on Wall Street about the value of spinoffs and whether they’re more hype than substance. One argument is that the individual parts of a company are worth more than the sum, while others think precisely the opposite. Activist investors regularly push companies to spin off their different divisions in the hopes of generating value for investors.

Some companies are often hesitant to do this, as they prefer to be diversified in the case of business troubles. The consistently “blue chip” Johnson and Johnson (JNJ) falls into that category. General Electric (GE), on the other hand, spun off its financial services unit in 2015 in order to focus on its core businesses.

Regardless of how one feels about spinoffs in general, there’s no denying that the WhiteWave spinoff from parent Dean Foods (DF) was a wise move. Dean Foods has declined 6 percent in the same period, but now offers a modest dividend with a 1.9 percent yield. There’s no doubt that Dean Foods’ longtime investors were big winners in the spinoff.

A Risky Endeavor

Spinoffs are never a guaranteed success. While they seem to generate value in the short term, financial gains happen less often than you might think. A study conducted by accounting firm Deloitte and consulting group The Edge looked at 385 global spinoffs that happened between 2000 and 2014. What they found was that 38 percent of the spinoffs lost value in the first year of trading.

The report, which came out in 2014, came at a time when both activist investors and companies were interested in spinoffs. eBay spun off its PayPal division (which they actually acquired a decade earlier), while Hewlett-Packard split into two in the hopes of reviving its ailing businesses.

Today, the appeal of spinoffs is higher than ever. By one measure, 49 percent of publicly traded companies surveyed said they’re planning on performing a spinoff within the next two years. While most of those plans may never come to fruition, it goes to show the popularity of the spinoff trend.

Why WhiteWave Worked

WhiteWave Foods didn’t fall into the category of low-performing spinoffs. Instead, the company enjoyed massive 51 percent gains in the first year.

But then, the idea of Dean Foods spinning off its organic division was always appealing. Dairy is a difficult business that’s at the mercy of fluctuating prices. Dean Foods’ larger business was struggling greatly, but WhiteWave Foods, with its higher margins, fared much better when milk prices were low.

Existing shareholders were given shares in the new company, while the deal helped Dean Foods earn $589 million from the transaction. Dean Foods is undoubtedly a weaker company without WhiteWave Foods, but the spinoff was worthwhile to both management and investors.

What’s Next?

The enormous value that WhiteWave generated for its investors makes their spinoff a model for other companies to follow. The steep rise in share price, even before the announced acquisition, was impressive. The acquisition made the spinoff even more successful.

Yet, as high as the share prices now are, not all investors are happy with the acquisition. Some say that Danone is seriously underpaying for WhiteWave Foods and that the company should hold out for a better offer. But even if a better offer doesn’t come along, WhiteWave shows just how lucrative a spinoff can be to long-time investors.

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