Dive Brief:
- Dairy Farmers of Americaagreed to buya substantial portion of Dean Foods’ business for $425 million.If the deal goes through, DFA will acquire 44 of the company’s fluid and frozen facilities, as well as the inventory, equipment and any other assets needed to operate them.
- Dean Foods,the largest milk processor in the U.S. with 57 manufacturing facilities and a portfolio of brands including TruMoo and DairyPure,filed for Chapter 11 bankruptcyin November and secured commitments for $850 million in debtor-in-possession financing. At the time, Dean was in "advanced discussions" with DFA for a potential sale.
- Although the parties have reached a deal, it remains subject to approval from the bankruptcy court and the U.S. Department of Justice. There is a bankruptcy hearing scheduled for March 12, whereDFAwould serve as a stalking horse bidder, setting the minimum price in the court-supervised sales process.
Dive Insight:
When Dean Foods announced it was filing for bankruptcy, the company was already in talks to sell itself to the Dairy Farmers of America. It makes sense DFA would move quickly to buy the company since it is the dairy cooperative's biggest customer.
"It is important to ensure continued secure markets for our members’ milk and minimal disruption to the U.S. dairy industry,"DFA's CEO Rick Smithsaid in a statement.
Dairy Farmers of America, a co-op with about 14,000 members nationwide, is familiar with the struggles of the milk industry today and needs to keep Dean's business afloat. The co-op was formed in 1998, and has faced its own financial struggles in recent years, with its 2018 net salesdown $1 billion from the year before.
The deal is subject to several hurdles.The Wall Street Journal reportedfederal antitrust regulators are already probing a possible deal between DFA and Dean Foods because some farm groups have raised concerns about the impact it could have on competition and prices.
"Whether the Justice Department will intervene remains to be seen. If it did, it would more likely require some adjustments to the DFA plan, not prevent it altogether," Andrew Novakovic, professor of agricultural economics at Cornell University, said in a statement emailed to Food Dive.
这不是第一次面临的公司antitrust concerns. Farmers filed a class action lawsuit against Dean Foods, National Dairy Holdings, Dairy Farmers of America and others in 2007, saying the groups were breaking antitrust laws. The complaint said Dean agreed to make DFA farmers its only suppliers for low milk prices. Dean Foodssettledfor $140 million in 2011, while DFA settled with the others in the suit for $168 million in 2013. Even though they settled,neither companyadmitted wrongdoing.
In addition to facing antitrust concerns, the dairy co-op could also be outbid.Court documents show Dean received interest from other buyers after the bankruptcy filing.
Before filing for bankruptcy, Dean tried to improve the company’s problems but had little success. Dean had reported net losses in seven of its previous eight quarters. It worked to reverse its situation bycutting costs,increasing its borrowing baseand replacing its CEO. It also laid off 207 workerswith the closure of two milkprocessing factories,ended more than100 dairy contracts with the company to curtail how much milk it was buying andclosed three other facilities.The company alsoconducted a strategic reviewand haddecided not to selljust two months before filing for bankruptcy.
Dean's CEO Eric Beringause, whojoined the companyin July, said in a release on Monday the company has had a relationship with DFA for 20 years and he was confident in the co-operative’s "ability to succeed in the current market."
Dean isn’t the only dairy company to face financial struggles recently. Bordenfiled for Chapter 11 bankruptcyin January, shortly after Dean. According to Bloomberg Law, the two entities recentlymet about a potential merger, but will not pursue a transaction.
Although DFA remains optimistic about the state of the dairy industry, it may not be easy for the co-op to turn around the business. Dean Foods faced stiff challenges from discounted private label dairy, increasingly popular alternative products and dropping fluid milk consumption.
Kenneth Rosen, a partner focused on bankruptcy and financial reorganization at Lowenstein Sandler,previously told Food DiveDean is facing "a lot of problems" that likely won't immediately resolve with a change in ownership.
"Whoever buys it is going to have to figure out how to make money in a world where the market is not growing," Rosen told Food Dive.
