- Dean Foods has increased its borrowing base availability to $265 million, which CEO Ralph Scozzafava said in a release would enhance financial flexibility and liquidity for the Dallas-based milk and dairy products processor and distributor.
- According to a Form 8-K filed July 1 with the Securities and Exchange Commission, Dean decided to include in the borrowing base equipment and real property at 16 of its facilities, with an appraised value of more than $450 million.
- Scozzafava noted the company's existing $450 million accounts receivable securitization facility provides another source of flexible, low-cost access to capital.
Dean Foods has been going through a difficult time as milk sales continue to slump. The company also lost a major client last year after Walmart opened its own milk processing facility in Indiana. Dean has been diversifying through investments in juices, waters and plant-based products, but those moves haven't made enough of a dent.
Including the first quarter of this year, the company has posted five consecutive quarterly losses and suspended dividends for the past two quarters. In response to these challenges, Dean has cinched in its collective belt by cutting costs, closing seven milk processing plants, eliminating jobs and pursuing a sale of all or part of the company.
Nevertheless, Dean Foods CEO Ralph Scozzafava remains optimistic things can be turned around this year with positive cash flow, and he told investors the company believes it has passed the inflection point, The Wall Street Journal reported. He added Dean has introduced new items — it debuted a line of ice cream dessert cups in April — and added new consumers.
Now that Dean has increased its borrowing base availability, it may explore more M&A activity to further diversify its portfolio and build up revenue. In 2017, Dean bought a minority stake in Good Karma Foods, which sells non-dairy milk and yogurt, and later announced it was taking a majority position in the company. That same year, Dean also purchased Uncle Matt's Organic, a maker of probiotic-infused juices and fruit-infused waters. In 2016, it bought the manufacturing and retail business of Friendly's Ice Cream.
The company may also be hoping the move will buy more time during which it can more aggressively pursue a sale of the entire company or perhaps just parts of it. Friendly's and Garelick Farms are for sale, although bids have reportedly been rejected.
JPMorgan analyst Ken Goldman predicted earlier this year there may not be many interested buyers for Dean Foods. And rumors that Saputo, a Canada-based producer of cheese and other dairy products, might be interested in buying Dean were recently squashed by CEO Lino Saputo.
"If Dean Foods does happen to find a buyer (unlikely, in our view), the stock will probably be purchased at a discount to the current price," Goldman told Seeking Alpha. "Dean is a levered company with a fast-deteriorating business and numerous out-of-date production facilities."
And now, with an increased borrowing base, it's not clear whether Dean has actually bought more flexibility or will have less of it as it tries to right the ship and satisfy both creditors and investors.