WhiteWave’s acquisition spreads Boulder’s reputation worldwide

Many experts are looking at the announcement that Paris-based Danone (OTCQX: DANOY) has agreed to pay $12.5 billion for WhiteWave Foods (NYSE: WWAV) as a global affirmation of the natural and organic food movement in Boulder County.

“It’s a global comment on the importance of the natural/organic food industry and our county,” said Garvin Jabusch, chief investment officer at Green Alpha Advisors in Boulder. “Pound for pound, there isn’t anything like it anywhere in the world. We’re a nexus for the natural-foods juggernaut.”

Wall Street certainly has taken notice. The list of acquisitions that began with natural and organic companies such as Celestial Seasonings and Horizon Organic is growing longer with the recent sales purchases of Boulder Brands and Justin’s.

“Danone’s acquisition of WhiteWave is further evidence that Boulder continues to drive the transformation of the food industry through innovation resulting in tremendous shareholder valuation creation,” said Steven Hughes, whose former company, Boulder Brands, sold to Pinnacle for $982 million last year. Hughes now is heading up a $200 million investment fund to grow small natural-food businesses, Sunrise Strategic Partners.

“The concentration of entrepreneurial talent, capital and iconic industry pioneers is further evidence of Boulder’s position as the Silicon Valley of the food revolution,” he said.

But the WhiteWave acquisition seems to stand apart, and not only because of the amount of money exchanging hands.

The acquisition, which has been approved by the boards on both the publicly held businesses, would be the second-largest ever for Danone, which has a market value of $39 billion and sales in more than 130 countries. The deal, subject to stockholder and regulatory approval, includes taking over about $2.5 billion in debt.

Danone is paying $56 per share, about 24 percent more than WhiteWave’s average stock price over the past 30 days and some 26 times more than the company’s annual earnings.

“It represented about 57 times their adjusted earnings per share, so you might want to look at it as an overvalued stock” said Jabusch, whose investment firm concentrates on companies making sustainable products, from food to energy. “But it is reflective of WhiteWave’s growth, which is 10 to 13 times the growth in the (dairy) industry.”

That’s not uncommon for large companies of all types, which find it difficult to create a great deal of growth in their markets once they become large, Jabusch said. The typical response of larger companies is to buy growth by acquiring faster-growing, smaller companies.

But there’s also something much larger behind this, he argued.

“There’s a rising demand for the alternatives” to conventional farming using pesticides, chemical fertilizers and hormones,” he said. “You see things like WhiteWave outpacing the industry. It’s really about the natural and organic industry pulling the cart. Fundamentally, I think that’s what’s really going on here.”

Steve Hoffman, managing director of Compass Natural, noted that the success of WhiteWave is the success of a number of brands, including the original Silk soymilk produced by founder Steve Demos, as the company also holds Horizon Organic and Earthbound Farms’ organic salads.

“An acquisition like this has got the world’s attention on Boulder — the largest global dairy company buying of the largest organic companies,” said Hoffman, whose boutique digital marketing, branding and public relations represents a number of companies in the natural and organic food industry. “But not only has it put Boulder on the national map, it puts the world’s eye on the success of natural and organic food.”

Danone has a number of brands such as Activia and Oikios yogurts and bottled water brands Aqua and Evian, and likely will use its marketing and advertising power to grow WhiteWave’s brands as quickly as possible, Jabusch said. However, he thought it unlikely that the parent company would mess with the “golden goose” in terms of its natural and organic mission.

Hoffman said that is important not only for the continued success of WhiteWave’s brands, but also for forwarding the goals of the organic movements. “If it ain’t organic, it’s being grown with pesticides,” he said.

“There is a tendency for substituting natural skews for organic skews,” Hoffman said. “I think they miss the boat on that. We can produce our food without those toxic chemicals.

“Milk is a gateway product for mothers who want to feed their children without pesticides. I laud Horizon Organic and WhiteWave and I ask them to continue to push the envelope in organic and not going with cheaper natural.”

There were some complaints about such tendencies, perhaps unfairly, earlier in WhiteWave’s history after Dean Foods acquired WhiteWave Inc. for about $300 million in 2002. Dean Foods added Niwot-based Horizon Organic Holdings in 2004, but spun off the entire operation in 2012 in a $391 million initial public offering.

That kind of investment opportunity is sometimes hard to come by for those interested in sustainable holdings, said Jabusch, whose company invested early in the publicly held WhiteWave.

“We’re gaining value, but we are losing a pure play,” he said. “We are assuming the deal does close and goes through and it looks for that. And the year to date performance of the stock is about 56 percent, which is a pretty good year.”

The purchase would move one more iconic Colorado natural and organic food company somewhat off the map.

“When you got back to the beginning, when now icons like Steve Demos and Mark Retzloff —  two self-described hippies at the time — had the idea that one day plant-based beverages and organic dairy would become big business, no one then would have ever dreamed just how right they were,” Hughes said.

“That vision, entrepreneurial passion and ability to attract capital over the past 30 years has turned Boulder County into an innovation engine epic center that now counts over 200 natural food and products companies,” he said. “The shareholder value creation to date has been remarkable — and over the next 10, 20 years holds the potential to be breathtaking.”

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