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OCA Voices Dissent Over Dean Foods Buyout of Horizon Organic

Daily Camera (Boulder, Colorado)

July 1, 2003

Dean Foods Buys Remaining Stake in Longmont, Colo.-Based Horizon Organic

By Matt Branaugh


 The Happy Cow got a whole lot happier on Monday.

Dean Foods Co. said Monday it will pay $ 216 million and assume $ 40 million in debt to buy the remaining 87 percent stake it didn't already own in Longmont-based Horizon Organic Holding Corp., the organic dairy products maker with a blissful bovine logo.

The deal, pending shareholder approval and expected to close during fourth quarter, will make Horizon a wholly owned subsidiary of Dallas-based Dean Foods, the nation's largest dairy distributor.

Horizon's headquarters and executive team will remain intact, and the company says its 338 worldwide employees -- including the 100 working in Longmont -- should keep their jobs. It even expects to add positions, including local ones, in coming months.

Shares of both Horizon (Nasdaq: HCOW, $ 23.75) and Dean Foods (NYSE: DF, $
31.50) closed at 52-week highs on Monday, with Horizon's stock soaring $ 4.82, or 25 percent. Based on the sale's terms, Dean Foods will pay $ 24 per Horizon share, representing a 27 percent premium over the stock's Friday close.

"It's a great day for Horizon Organic," said Chuck Marcy, the company's president and chief executive.

The 11-year-old company established itself through its lines of organic-based dairy goods both in the United States and the United Kingdom. Its refrigerated organic milk, for instance, is produced from cows without antibiotics, growth hormones and pesticides.

Most outside observers expressed optimism over Monday's news, although one industry observer said he's skeptical organic businesses can stay true to their roots after getting snatched up by mainstream players.

Monday's announcement also marks the second time in a year that Dean Foods shelled out millions to buy up a Boulder-area health food company it already partly owned. In May 2002, Dean Foods paid $ 189 million for the remaining 64 percent stake in Boulder-based White Wave Inc., which makes Silk, the nation's best-selling soy milk brand, and other soy-based products.

Marcy said Dean Foods' purchase of Horizon, coupled with the White Wave acquisition, further bolsters the giant company's efforts to become an organic foods leader.

"We're a perfect fit with their organization," he said. "They're a dairy company, and they now have the biggest organic brands in their refrigerated case."

Horizon claims its brand is tops in the United States for organic milk, dairy and juice categories, and No. 1 for organic milk in the United Kingdom.

While Horizon's organic milk has made the biggest strides, popping up in 62 percent of the nation's supermarkets, Marcy said the deal will boost distribution of the company's other products.

"That's probably the biggest initiative -- to ramp up our growth in the short term," Marcy said.

Dean Foods' financial backing, as well as its infrastructure and distribution lines, will make that possible, he said.

Right now, Horizon's butter resides on a quarter of the country's supermarket refrigerator shelves, while its yogurts penetrate 14 percent, and its cheeses only 9 percent, he said.

Steve Demos, founder and president at White Wave, said he can attest to Dean Foods' strength. Sales at White Wave grew 55 percent since last year's acquisition, he said.

And Dean Foods is seizing an opportunity, too, nabbing the country's first nationally established milk brand, said Frank Lampe, editorial director for Conscious Media Inc. in Broomfield, which publishes the trade publication LOHAS Journal.

The brand keyed Dean Foods' interest, said P.I. Aquino, Dean Foods' assistant treasurer.

Because of the terms of the sale, Horizon shareholders definitely win, Lampe said.

In comments released after the deal was announced, U.S. Bancorp Piper Jaffray's Eric Larson said he expects Horizon will have to maintain annual revenue growth of 24 percent to justify the high premium Dean Foods paid, though.

Marcy said Horizon remains comfortable with previous estimates of 20 percent to 25 percent annual growth. With Dean Foods' backing, that kind of projection is achievable, Lampe said.

In 2002, Horizon posted sales of $ 187.5 million, up from 2001's $ 159 million.

But Ronnie Cummins, national director for the watchdog group Organic Consumers Association in Minnesota, was less cheery about the acquisition, saying he believes organic-oriented businesses bought by large international corporations are selling out.

Firms like Dean Foods use conventional competitive methods to consolidate suppliers, squeeze out the lowest possible price and maximize profits for shareholders. The quality of animal care, as well as organic principles, suffers, Cummins said. Organic consumers will eventually catch on and buy elsewhere, he added.

Demos disagreed. Dean Foods has never impeded White Wave's business model or practices, he said, and he thinks conventional companies are shifting themselves into more responsible, socially conscious enterprises after seeing the successes of businesses like White Wave and Horizon.

"Did we sell out or did (Dean Foods) buy in?" Demos said. "I think it's obvious. They bought in."

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