Thursday, 27 January 2005

Dean Foods Announces Plan to Spin-Off Its Specialty Foods Group

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Thursday, 27 January 2005


Creates Leading Private Label Business With Estimated 2005 Sales of Over
$700 Million

Sam Reed, Former President and CEO of Keebler, to Lead New Company

Enables Dean Foods to Sharpen Focus on Core Dairy and Branded Businesses

DALLAS, Jan. 27 /PRNewswire-FirstCall/ — Dean Foods Company (NYSE: DF)
announced today that it intends to pursue a tax-free spin-off of its Specialty
Foods Group business to Dean shareholders. The Company also announced that,
effective immediately, an experienced and proven management team headed by Sam
Reed, former CEO of Keebler Foods Company, has joined the Specialty Foods
Group to lead the new company. In conjunction with their employment, the new
management team has made a cash investment of $10 million in the Specialty
unit, representing 1.67% ownership of the new business.

The planned debt-free spin-off of the Specialty Foods Group will create a
publicly traded private label and regionally branded consumer packaged goods
company with approximately 1,700 employees and estimated 2005 revenues of over
$700 million. In conjunction with the spin-off, Dean Foods is moving its
Mocha Mix non-dairy creamer, food service dressings, and Second Nature egg
substitute businesses into the Specialty Foods Group from the Dean’s Branded
Products and Dairy Groups. The newly created company holds leading positions
in the private label pickle and non-dairy powdered coffee creamer markets.
Additionally, the firm is a supplier of aseptic cheese sauces, pudding,
peppers, dressings, liquid non-dairy coffee creamers and egg substitutes to
the retail and foodservice channels. The Specialty Foods unit’s strong
operating cash flows, combined with an unleveraged balance sheet, will provide
the new management team with significant financing capacity for the potential
expansion of its platform through targeted acquisitions and other initiatives.

“Bringing this high caliber team on board and effecting a tax-free spin-
off of the Specialty Foods business provides a unique opportunity to unlock
value for Dean Foods’ shareholders,” commented Gregg Engles, chairman and
chief executive officer of Dean Foods Company. “Dean shareholders will own
shares in a new publicly traded consumer packaged foods company with a proven
leadership team and significant strategic and financial flexibility. Sam Reed
and his colleagues have an excellent track record of operating and building
food businesses, and under their leadership, we believe the new company is
well positioned for value creation. Following the spin-off, we at Dean will
be able to further sharpen our focus on our core businesses.”

The new executive team previously served as the senior management of
Keebler Foods Company from 1996 through its sale to Kellogg in 2001. In
addition to Sam Reed as chairman and CEO, the management team of the new
company includes David Vermylen as president and chief operating officer; E.
Nichol McCully as chief financial officer; Thomas O’Neill as general counsel
and chief administrative officer; and Harry Walsh as senior vice president of
operations. Terms of the agreements entered into between the new management
team and Dean Foods are summarized in an 8-K filed by Dean with the Securities
and Exchange Commission today.

“We are excited by the opportunity to lead this business as an independent
company,” stated Mr. Reed. “It is a strong business and offers a unique
opportunity for growth. We look forward to working with the talented
employees of the Specialty Foods Group to realize the potential of the new
company.”

The business lines included in the new company are expected to produce
2005 revenues of over $700 million and operating margins of between
approximately 12% and 14%. If the unit were retained by Dean it would be
expected to contribute approximately $0.37 to $0.39 per share to Dean Foods’
2005 adjusted earnings. Inclusive of the businesses that are being spun off,
Dean’s 2005 adjusted earnings are expected to be between $2.20 and $2.30 per
share. Information about the Specialty Foods Group segment’s 2004 performance
will be available in Dean’s upcoming earnings announcement on
February 10, 2005.

The spin-off is intended to take the form of a tax-free distribution to
Dean Foods’ shareholders of a new publicly-traded stock. The stock
distribution ratio will be determined at a future date. The transaction is
expected to be completed in the third quarter of 2005, subject to confirmation
by the Internal Revenue Service of the tax-free nature of the transaction,
registration of the new security with the Securities and Exchange Commission
and certain other customary conditions.

Dean Foods Company is one of the leading food and beverage companies in
the United States. Its Dairy Group division is the largest processor and
distributor of milk and other dairy products in the country, with an extensive
refrigerated direct-store-delivery network. Through its White Wave and
Horizon Organic brands, Dean Foods Company also owns the nation’s leading
soymilk and organic milk brands. The company’s Specialty Foods Group is a
leading manufacturer of private label pickles and non-dairy powdered coffee
creamers. Dean Foods Company and its subsidiaries operate approximately
120 plants in 36 U.S. states, Spain and the United Kingdom, and employ
approximately 29,000 people.

Conference Call

A discussion of this announcement will be held at 10:00 a.m. ET Thursday,
January 27, 2005 and can be accessed by dialing (719) 457-2621 and entering
participant code 4538818, or through the investor relations section of the
Company’s website at https://www.deanfoods.com . Following the live
discussion, a replay of the call will be archived at the company’s website.

Risks

The following statements made in this press release are “forward-looking”
and are made pursuant to the safe harbor provision of the Securities
Litigation Reform Act of 1995: (1) projected 2005 revenues and operating
margins for the new company, (2) the contribution that the Specialty Foods
Group was expected to make to Dean Foods Company’s 2005 adjusted earnings per
share, (3) Dean Foods Company’s 2005 projected adjusted earnings per share,
(4) the likelihood of and expected timing for completion of the spin-off
transaction, (5) Dean Foods Company’s expectation that the proposed spin-off
will create additional value for Dean Foods Company’s shareholders, (6) Dean
Foods Company’s expectation that the new company will be able to secure
adequate financing for future growth, and (7) Dean Foods Company’s expectation
that the new company will be able to grow through acquisitions. These
forward-looking statements are merely predictions and, therefore, they involve
risks and uncertainties which could cause actual results to differ materially
from the forward-looking statements set forth in this press release. For
example, financial projections, including those for the new company and those
for Dean Foods Company, are based on a number of assumptions and estimations.
Actual financial results could be materially different than projected for a
number of reasons, some of which could be beyond the control of Dean Foods
Company or the new company. Sales, profit margins, net income and earnings
per share can vary based on a variety of economic, governmental and
competitive factors, many of which are described in Dean Foods Company’s
filings with the Securities and Exchange Commission, including its Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 (which can be
accessed on Dean Foods Company’s website at https://www.deanfoods.com or the
website of the Securities and Exchange Commission at http://www.sec.gov .) In
addition, there are a number of risks associated with the potential spin-off
transaction and the engagement of the new management team. For example, the
spin-off is conditioned upon Dean Foods Company receiving confirmation from
the Internal Revenue Service (the “IRS”) that the transaction would be tax-
free to Dean Foods Company and its shareholders. The proposed transaction is
complicated and there can be no assurance that the IRS will confirm the
company’s belief that the transaction should be able to be completed on a tax-
free basis. If the company does not receive the requested IRS ruling, the
company will not proceed with the spin-off transaction. If the spin-off is
not completed, the new management team will likely not stay with the company
and Dean Foods Company will incur a significant amount of transaction costs
related to the failed transaction that would otherwise be paid by the new
company. See the Current Report on Form 8-K filed by Dean Foods Company
earlier this morning, available at https://www.deanfoods.com or
http://www.sec.gov . Even if the spin-off is completed, there can be no
assurance that it will be value-creating for the shareholders of Dean Foods
Company. The value of the stock in the new company will depend on a number of
factors, many of which are beyond the control of the new company or Dean Foods
Company, such as investor confidence in the new management team and the
prospects of the new company, in addition to the operating and financial
performance of the Specialty Foods Group. The new company’s growth strategy
is based in part on making strategic acquisitions and there can be no
assurance that the new company will be able to find suitable acquisition
targets at attractive prices or that the new company will be able to secure
adequate financing to complete any such transaction.

Non-GAAP Financial Information

The earnings per share projections contained in this press release are
non-GAAP financial measures that eliminate any potential net expense or net
gain related to net plant closing costs and non-recurring expenses. Dean
Foods Company cannot predict the timing and amount of charges associated with
facility closings and restructurings or non-recurring items associated with
the company’s operations. Therefore, management does not consider facility
closing or restructuring costs when evaluating its performance, when making
decisions regarding the allocation of resources, or in determining incentive
compensation for management or in developing earnings projections. Facility
closing and restructuring costs are not recorded in any of the company’s
operating segments. The company provides adjusted earnings per share numbers
to investors in order to allow investors to make meaningful comparisons of the
company’s operating performance between periods and to view the company’s
business from the same perspective as the company’s management. This non-GAAP
financial information is provided as additional information for investors and
is not an alternative to GAAP. These non-GAAP numbers may be different than
similar measures used by other companies.

CONTACT:
Cory Olson
Senior Vice President and Treasurer
(214) 303-3645

Barry Sievert
Sr. Director of Investor Relations
(214) 303-3437

MEDIA:
Amy Barker
Communications Manager
(214) 303-3524

SOURCE Dean Foods Company

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