WhiteWave sale high-water mark for Colorado’s natural food industry

By ALDO SVALDI | Denver Post
Commentary by Steve Hoffman

PUBLISHED: July 7, 2016 at 7:30 pm | UPDATED: July 8, 2016 at 4:17 am

Danone SA’s $10 billion purchase of WhiteWave Foods Co. is a big deal — not just because of the hefty price tag, but because it could make Denver and Boulder a center for the organic and natural foods industry not just nationally, but globally.

“This is a vote for lifestyle change going forward by a major player. I am delighted that the vision is embraced,” said Steve Demos, the Boulder entrepreneur who launched what eventually would become WhiteWave Foods back in 1977.

Demos, motivated by a belief that food needed to have a lighter environmental impact, borrowed $500 and initially made tofu in a bathtub. Paris-based Danone on Thursday agreed to pay $56 a share for WhiteWave, which works out to $10 billion after subtracting $2 billion of debt.

The acquisition is the second-largest ever for Danone, which has a market value of $39 billion and sales in more than 130 countries. But the story goes beyond an international dairy giant snapping up one of Denver’s largest public companies in market value.

Plant-based milk sales are growing at 11 percent a year, organic milk sales are rising 8 percent, and conventional milk sales are increasing at 1 percent a year, the companies noted in a conference call on the acquisition.

Consumers increasingly want alternatives, and the WhiteWave purchase, which should wrap up by the end of the year pending shareholder and regulatory approvals, gives Danone a faster way to offer those.

“One of the big systemic risks the global economy faces is use of pesticides and herbicides. WhiteWave is a prime example of a solution and people prefer the solution to the risk,” said Garvin Jabusch, chief investment officer at Green Alpha Advisors in Boulder, which owns shares in the company.

Danone, the company behind yogurts Activa and Oikios and bottled water brands Aqua and Evian, will become a dominant player in dairy alternatives and double its U.S. sales via the acquisition, which it is borrowing cash to finance.

Danone offered to pay a 24 percent premium above WhiteWave’s average stock price the past 30 days. It is paying 26.2 times earnings versus the just under 15 times earnings that dairy firms typically command, Bloomberg calculates.

Jabusch argues that Danone must believe it can expand the reach of WhiteWave’s various brands quickly, and he doesn’t think the French giant will mess with the model that made the company successful.

“What I do see them changing is leveraging their marketing machine and advertising muscle to expand WhiteWave’s reach,” Jabusch said. “It represents a huge opportunity for growth. WhiteWave’s biggest challenge will be adding production capacity.”

But the combination isn’t without its critics. Some shareholders want a higher price, and the advocacy group Food & Water Watch is urging regulators to give a thumbs down on the grounds it will reduce competition.

“These mega-deals consolidate corporate power in the hands of only a few giant food companies, in turn limiting choices for consumers while raising retail prices,” the group said in a statement.

Another concern is whether Danone’s corporate culture will dilute the environmental ethic that drove the creation of various WhiteWave brands and stifle future innovations. WhiteWave is known for spinning out dozens of new products a year, many from its lab in Broomfield. One of the latest offerings is a new banana-based milk.

“Danone is not an organic company. They are a dairy corporation that owns organic brands. Prove me wrong. Show me that you are on a mission to feed the world and save the world,” said Steven Hoffman, managing director of Compass Natural in Longmont.

Boulder-based Celestial Seasonings pioneered the herbal tea market, launching Colorado’s natural foods movement in the process. But after years under a corporate umbrella, Celestial has lost its cutting edge, allowing more innovative rivals to erode its market share, Hoffman said.

Still, Hoffman isn’t concerned that Boulder and Denver will cease to be an innovation hub for the natural foods industry. New companies continue to pop up even as more established ones get gobbled up.

“It continues to shed a light on the Boulder-Denver market. We are an incubator. We are truly an epicenter for these products,” Hoffman said.

When Dallas-based Dean Foods acquired a much smaller White Wave Inc. back in 2002, it paid slightly less than $300 million. WhiteWave was best known then for its Silk line of soy milk. Dean Foods in 2004 purchased Niwot-based Horizon Organic Holdings in 2004, adding organic milk to WhiteWave’s plant-based offerings.

In August 2012, Dean Foods spun off WhiteWave in a $391 million initial public offering, providing the Denver-based company a currency to make numerous acquisitions, including the $600 million buyout in 2014 of Earthbound Farms, America’s largest grower of organic produce.

Now, Danone is willing to pay $10 billion for WhiteWave, and has the distribution muscle to put its products on stores shelves across the globe.

“This is a heck of an endorsement,” said Demos, who no longer holds an interest in the company, but stills view it as a the child he raised.