UPDATE 1-Grupo Lala, Michael Foods, Apollo eye Dean unit-sources
* Dean Foods' Morningstar draws strategic, PE interest
* Final bids for the dairy unit due in weeks-sources
* Morningstar seen valued in $1 bln to $1.5 bln range
* Apollo working with consumer veteran Metropoulos-sources
(Adds background on Apollo operating partner)
NEW YORK, Oct 25 (Reuters) - Dean Foods Co's Morningstar business has attracted takeover interest from Michael Foods and Mexican dairy company Grupo Lala, people familiar with the matter said, in a deal that could be valued in the $1 billion to $1.5 billion range.
Private equity firms including Apollo Global Management LLC are also pursuing Morningstar, which makes creams, coffee creamers and other dairy products mostly under private label or store brands, the people said.
Dean Foods confirmed a Reuters report last month that it is seeking a buyer for the Morningstar unit, a move that could presage a break-up of the largest dairy company in the United States.
The Dallas, Texas-based company, being advised by investment bank Evercore Partners Inc on the sale process, is expected to receive final bids for Morningstar in coming weeks, the people said.
Dean Foods, Grupo Lala, Michael Foods and Apollo declined to comment.
Mexico's Grupo Lala sells yogurt, milk and other dairy products. U.S.-based Michael Foods, which sells egg and dairy products, refrigerated grocery and potato products, is owned by GS Capital Partners, the private equity arm of Goldman Sachs Group.
Apollo, meanwhile, is working with consumer industry veteran C. Dean Metropoulos, who is currently an operating partner at the private equity firm, according to the people familiar with the matter.
In the 1990s Metropoulos was brought in to help rescue Morningstar, which was later sold for about $1 billion to the precursor of the current Dean Foods.
The billionaire investor also bought Pabst Blue Ribbon beer in 2010, and his previous jobs have included running International Home Foods and Pinnacle Foods. Metropoulos was once the joint owner of brands such as Duncan Hines baking mixes, Vlasic pickles and Swanson frozen dinners.
In addition to considering a sale of Morningstar, Dean Foods is also spinning off its WhiteWave unit in an initial public offering this week. It priced 23 million shares at $17 each on Thursday, raising $391 million.
The spin-off of WhiteWave, which makes Horizon Organic milk and Silk soy milk, and a sale of Morningstar would leave Dean with its Fresh Dairy Direct business, which sells milk under regional and local brands.
Morningstar had net sales of $1.3 billion in 2011, making up 10 percent of Dean's overall sales of $13.1 billion.
Fresh Dairy Direct is Dean's largest business, with annual sales of $9.6 billion, but it is the most challenged, since selling milk is a low-margin business.
The company's stock price tumbled 27 percent in July amid concerns over rising dairy commodity costs but then rebounded after Dean announced the IPO of WhiteWave and reported stronger-than-expected quarterly results.
Dean's costs are dependent on a range of volatile commodities from fuel to dairy and passing on those costs to consumers is not easy, since there is little brand loyalty and consumers often choose the cheapest brand.
In 2011, the company took a $1.9 billion charge to write down goodwill in the dairy business, which it had built up through acquisitions over the years. Falling demand and prices over several years had hurt the value of that business.
(Additional reporting by Martinne Geller in New York; Editing by Steve Orlofsky and Bob Burgdorfer)