Dean Foods Co (DF) said on Wednesday that it is weighing a potential sale of its Morningstar dairy division.

The company said it recently decided to explore a transaction for Morningstar, the smallest of its three segments, as part of its goal to maximize shareholder value, confirming a Reuters report earlier on Wednesday.

"We have not yet identified a buyer for Morningstar, but we know this business possesses an attractive portfolio in a growing marketplace and a top-notch management team," Dean Foods said in a statement.

"That said, we will only sell this business if we can do so in a transaction that maximizes shareholder value and ensures the future success of the business," the company added.

Shares of Dean Foods rose 4 percent to $16.02 on the New York Stock Exchange before it was halted for the news.

The company has hired investment bank Evercore Partners Inc (EVR) to shop the business to potential buyers and has attracted interest mostly from private equity firms, people familiar with the matter said before the company made its announcement. The sale could fetch more than $1 billion for Dean Foods, they said.

Evercore did not respond to requests for comment.

Morningstar sells Friendship cottage cheese and private label dairy products such as creamers, ice cream mix and sour cream. It supplies a range of foodservice customers such as restaurant chains.

The private label business has lower margins than the company's branded products, which include Silk soy milk, Horizon Organic dairy products and International Delight coffee creamer products.

The auction of Morningstar comes as Dean Foods tries to reduce debt. The Dallas, Texas-based company said last month it plans to sell 20 percent of stock in its WhiteWave segment, which sells branded dairy products including organic milk, in an initial public offering valued at up to $300 million.

The company plans to use the proceeds to reduce outstanding debt at Dean Foods.

Morningstar's net sales totaled $1.3 billion in 2011, roughly 10 percent of the company's overall sales last year.

Selling milk is a low-margin business, since costs are dependent on a range of volatile commodities from fuel to dairy. Passing on those costs to consumers is not easy, since there is little brand loyalty and consumers often just 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.

Dean Foods has improved its business recently, after cutting costs and working to offset weakened demand at its core fresh dairy business.