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11/30/2003

Buy-in or sell-out?

By Tony Kindelspire
The Daily Times-Call

BOULDER — It’s kind of like having an organic sugar daddy — but less controlling and even more supportive.

White Wave Inc., which started 26 years ago as a one-man company, has grown into a multimillion dollar soy business. But the company’s independence disappeared — or did it? — two years ago when it was purchased by Texas-based Dean Foods, the largest dairy company in the United States.

How has a buyout affected the soy company that started with its owner plying the streets of Boulder, selling tofu out of his little red wagon?

The short answer is, it hasn’t. In fact, with the marketing and distribution muscle Dean provides, White Wave founder Steve Demos couldn’t be happier with his company-within-a-company’s position.

Though sales of organic food products like White Wave’s make up only about 2 percent of total food sales in the United States, organic sales are at $13 billion a year and growing at a rate of 20 percent per year, 10 times the growth of traditional food sales.

“If the milk business grows 2 percent next year, they’ll be doing high-fives and the end zone dance in an office somewhere,” said Demos, president and “head bean” of White Wave. “If we grow less than 55 percent, we’ll be disappointed.”

Last year, White Wave did more than $200 million in sales and is projecting $320 million this year — $300 million of that in its Silk soymilk, the top-selling soy beverage on the market.

A year and a half ago, Dean Foods signed an agreement to purchase the 64 percent of White Wave stock it did not already own for $189 million.

In a deal set to be finalized in January, Dean is buying out the remaining 87 percent of stock in Horizon Organic that it does not already own for $216 million.

While some fear the change that will come with Horizon under Dean’s ownership, Demos said that from his own experience, there is nothing to fear.

Dean, Demos said, is simply taking advantage of the “economic synergies” between the companies.

One of the things Dean brings to companies like White Wave and Morningstar Foods — makers of Marie’s salad dressings and dips — is the size and efficiency of its supply model, Demos said.

“Conceptually, that’s a pretty good model,” he said. “It’s pretty efficient. That’s why they leave us alone, by the way — because we’re doing so well up here.

“A greater demonstration of their appreciation here is no one in this building is from Dallas. They may have come here as a child, but not because they’ve worked at Dean Foods recently.”

Because he’s a part of the “acquirer,” Demos felt it inappropriate to comment directly on the “acquiree” — Horizon — but the experience of his company can shed some light on the way things might soon be for its fellow Boulder company.

Demos said there was initial skepticism from loyal customers and investors when they heard about Dean buying White Wave, but he worked hard to quash it, traveling around delivering a speech titled “Did we sell out or did they buy in?”

“It’s all about the scale, the infrastructure, the distribution capabilities,” Demos said.

Silk is produced from soybeans at three “extraction” sites around the country, and those factories in turn supply 16 others, who actually make the finished product. With help from Dean’s extensive distribution system, Silk is now found in 97 percent of the grocery stores in the country.

Demos stressed that “what never occurred” since the acquisition by Dean was the loss of his company’s autonomy, direction or resources. Also on the positive side: With a product growing as fast in popularity as Silk is, it helps that the parent company has some rather deep pockets so supply can keep up with demand.

Demos said Dean has bought into his “what happens if this works” approach to business.

“Our growth rate has been so fast that we create demand for factories faster than we can build them,” Demos said. “The truth is, we don’t have to go to the bank, they are our bank, and they respond accordingly. Except they don’t charge interest.”

Dean Foods’ acquisition of White Wave did not come about as you might expect. It was White Wave that hatched the idea, not the other way around.

“They never approached us — we approached them,” said Demos. “We had identified five very large corporations, and Dean was our partner of choice going forward.”

Demos credits Gregg Engles, Dean Foods’ chairman of the board and chief executive officer, for being “a very progressive, forward-thinking man.

“They didn’t want to change the (company’s) culture. And they were decentralized,” meaning decisions were made at the local, rather than corporate level.

That last point was probably the most important, Demos said: “We told them zip codes were non-negotiable.”

Demos answers directly to Engles, and when the Horizon deal goes through, that will also be the case for Chuck Marcy, CEO of Horizon.

“Clearly, there are opportunities to continue to grow and extend the Horizon Organic brand,” said PI Aquino, assistant treasurer at Dean Foods. “These are both very well recognized brands (at Horizon and White Wave), and both of their management teams are doing a fabulous job.”

Tony Kindelspire can be reached at
303-776-2244, Ext. 291, or by e-mail at tkindelspire@times-call.com.