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Lino Saputo Jr., president and chief executive officer of cheese manufacturing company Saputo Inc., speaks during the company's annual general meeting in Laval, Quebec August 3, 2010.

© Christinne Muschi / Reuters/REUTERS

Saputo Inc. is bolstering its presence in the United States with the $1.45-billion (U.S.) acquisition of dairy products maker Morningstar Foods LLC.

Montreal-based Saputo said on Monday it has signed a definitive agreement to buy Morningstar from parent company Dean Foods Co.

Morningstar produces a mix of dairy and non-dairy extended shelf life items, including creams, ice cream mixes, whipping cream, aerosol whipped toppings, iced coffee, half and half, and sour cream and cottage cheese.

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Saputo is primarily a cheese producer in the U.S., so this deal – the company's largest acquisition ever – gives it a strong presence in the dairy category as well, making its U.S. operations more like those in Canada.

The products are marketed under a variety of private labels and owned brands and sold to retailers, quick-serve restaurant chains, grocery stores, mass merchandisers and distributors across the U.S.

Saputo chief executive officer Lino Saputo Jr. said he will be on the lookout for further acquisitions in the U.S., although not as big as Morningstar.

"This is a platform now for smaller-type acquisitions," he said in an interview.

Once Morningstar is fully integrated, Saputo will be generating about $1-billion (Canadian) of cash and carrying roughly $1.8-billion of debt, he said.

"We still have the ability to easily add, after this acquisition, $2-billion of debt," said Mr. Saputo.

Saputo is now among the top three cheese and dairy companies in North America and somewhere around the 12th spot globally, he said.

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Asked whether the company might one day be in the world's top five, he replied: "The potential for that does exist. Could we be in the top five some time in the future? I would think so."

Morningstar has 10 facilities in nine states and employs about 2,000 people.

Saputo said in a news release it expects the transaction to be immediately accretive to earnings.

The combined business will have about 12,000 employees and 57 manufacturing plants in five countries.

Saputo said Morningstar will complement the activities of its Saputo Dairy Products Division (USA).

Coast-to-coast service will be improved thanks to Morningstar's national manufacturing and distribution footprint, said Saputo.

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The deal also expands the range of future acquisition opportunities, the company said.

From its modest beginnings more than 50 years ago as a maker of mozzarella cheese for Montreal's Italian community, Saputo has grown into a global cheese and dairy giant through an aggressive acquisition strategy.

Morningstar is a major transaction that follows on deals such as last year's $270.5-million (U.S.) purchase of Fairmount Cheese Holdings Inc.

Last month, Mr. Saputo said he saw limited growth in Canada and was on the lookout for acquisition opportunities in the U.S. and Latin America and possibly Australia.

Besides being Canada's largest dairy processor, Saputo is also the country's largest snack cake producer and has been expanding into the eastern U.S., but has downplayed speculation it might go after assets put on the block recently by Hostess Brands Inc., maker of the well-known Twinkies.

Canaccord Genuity analyst Derek Dley said in an interview that Morningstar will likely allow Saputo to realize operating-cost savings but not to the same extent as with previous U.S. acquisitions, particularly mozzarella-maker Land O'Lakes West Coast Industrial and mozzarella and cheddar manufacturer Alto Dairy Cooperative.

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"I don't think this will be as game-changing," he said.

Saputo has a strong balance sheet, allowing it to finance the deal through a bank loan rather than having to reaise equity, he added.

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