Dean Buys White Wave for $189 Million

by Joseph Lewandowski

On May 10, White Wave founder Steve Demos stood before a standing room-only crowd in a packed New York City hotel ballroom and delivered the message he’d waited nearly 30 years to pitch: Operating a business dedicated to the principals of right livelihood and sustainable agriculture can deliver not only spiritual fulfillment, but big-time profits.

Two days before, Demos announced that Dean Foods, the giant Dallas-based dairy and beverage company, had purchased White Wave for $189 million.

For Boulder, Colo.-based White Wave, the purchase means the company will have the financial and physical resources to put more of its soy products – primarily its Silk soy beverage – into more consumers’ homes. Dean will provide cash and expertise to expand marketing and manufacturing. The company’s 120 dairy and manufacturing facilities scattered throughout 38 states will provide much-needed production facilities for Silk. Currently, White Wave can’t meet consumer demand.

Demos started making organic tofu in 1977 in Boulder and built the company into a powerhouse that last year generated $125 million in sales, mostly attributable to Silk. But White Wave didn’t have the money to keep up with national demand and maintain its market lead in the soy milk category.

Dean, which bought a 36 percent stake in 1999, decided to buy all of White Wave because of Silk’s astounding sales growth.
“Soy milk is one of the most promising branded growth opportunities in the food and beverage industry today,” said Greg Engles, Dean’s CEO, in a press release. “… White Wave is well positioned to take advantage of the explosive growth potential that this category holds.”
Silk is stocked in 94 percent of U.S. grocery stores and holds a 75 percent market share in the category. But only about 6 percent of American households purchase Silk.

“We know there are 25 million households interested in trying [natural] products,” Demos said. “We are capable of quadrupling sales. There aren’t many brands that generate $450 million in revenue.”

The sale of White Wave was not a surprise for those who follow the industry closely; the price fetched by Demos, however, did raise the eyebrows of analysts. Adam Ismail, a consultant with Health Business Partners in Providence, R.I., said that Dean paid a premium for White Wave. Including Dean’s previous investment in White Wave, he estimates it placed a value of about $295 million on White Wave, more than double annual sales. During the past few years, other functional food companies have sold for just more than the annual sales amount, Ismail said.

“White Wave has maintained significant sales growth while most other companies have slowed,” Ismail said. “Dean Foods is smart to pay that much because they’re getting lots of growth. There aren’t a lot of companies out there like that.”

Besides growth in North America, Ismail believes that Dean will help drive growth in the European market where soy milk is not as well known.

“International is a very untapped market. There’s great potential there,” he said.

White Wave must continue to be aggressive because it will soon face more competition from major companies. The joint venture between General Mills and DuPont, 8th Continent, is test-marketing a soy beverage on the East Coast.

The relationship between White Wave and Dean had been clouded for about a year since Dean merged with Suiza. White Wave sued Dean demanding its shares back because Suiza has its own soy beverage, Sun Soy, that competes with Silk. Early this year, Demos, who was troubled by the situation, called Engles to discuss the pending litigation. The two executives met in Boulder and quickly settled the matter.

Longtime White Wave employees were rewarded for their service. Demos spread the wealth, distributing about $9.5 million, 5 percent of the sale proceeds to his co-workers.

Demos and his management team will remain in Boulder and continue to run White Wave the way they always have, based on Demos’ belief in “business without guilt.”

“Our initial mission was to change how people eat, and we’ve accomplished that to a degree,” Demos said. “Now Dean Foods has invested in our philosophy, in our culture and in our way of doing business. We have the better business model based upon principles, ethics and supporting sustainable agriculture. And from that they’ll see very serious profits.”

Reprinted with permission from Natural Foods Merchandiser, June 2002. Published monthly by New Hope Natural Media, a division of Penton Media, Inc.