WhiteWave Foods, best known for its Horizon Organic Milk, Silk and Land O’ Lakes beverage and dairy labels, has a new product line: vegetables.
The company, which just completed its spin-off from Dean Foods in May 2013, has purchased the organic produce grower Earthbound Farm. The $600 million price tag isn’t out of line for the acquisition, either, since it will give WhiteWave a seat at the head of the table as the largest organic produce manufacturer in the country.
Gregg Engles, chairman and CEO of WhiteWave described the acquisition as an “exciting step in WhiteWave’s evolution [that] reaffirms our leadership in the organic foods and beverages industry in North America. With Earthbound Farm as part of our portfolio, WhiteWave will now provide the two most popular gateways for consumers to enter into the organic category – produce and dairy.”
The acquisition is also a smart move for the company, which holds one of the top brands for soy milk, but doesn’t hold a footing into the most lucrative sector of the organic market. Organic sales represented $26.3 billion in 2012. Fruits and vegetables claimed 37 percent of that market share, while dairy claimed only 17 percent.
But there is another reason that WhiteWave may be eyeing the organic produce market. Organic feed costs for livestock have ballooned in the past few years, making it more difficult for organic-certified dairy farms to keep up with demand.
While the Earthbound acquisition offers more opportunities for expansion, it does come with some new risk factors, says analyst William B. Chappell Jr., who reviewed WhiteWave for SunTrust Robinson Humphrey. He pointed out that there will be new challenges for the parent company in the coming year.
The company “is doubling its overall exposure (from 20 percent of sales to 40 percent) to the organic farm complex, which comes with weather, product quality and pricing challenges," Chappell said. But on the whole, WhiteWave is expected to do well from the purchase.
Yesterday’s appointment of Kevin J. Yost as Earthbound Farm’s new president indicates that while WhiteWave has assured customers that there will be minimal changes to the company for now, the new owner takes the purchase as an important step in its future. It’s also retained Earthbound Farm’s previous CEO Charlie Sweat on advisory capacity. Sweat served the company for 15 years, during which the company’s revenues grew from an estimated $10 million to more than $500 million and successfully cornered the market on organic produce sales.
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