Dairy Farmers of America Strikes $425 Million Deal for Dean Foods Assets -- 2nd Update
February 17 2020 - 2:16PM
Dow Jones News
By Jacob Bunge
The biggest U.S. dairy farming cooperative struck a $425 million
deal to buy dozens of plants from bankrupt milk processor Dean
Foods Co., in a deal executives said would preserve jobs and
markets for farmers' milk.
The deal, which was proposed by Dairy Farmers of America, would
see the Kansas City, Kan., agricultural cooperative take over the
bulk of Dean's plants, following the top U.S. milk company's
bankruptcy filing in November.
The deal requires approval of the bankruptcy court and the U.S.
Department of Justice.
Dean's bankruptcy followed a yearslong decline in sales of fluid
milk, the Dallas company's main business. Bottled water, fruit
juices and plant-based milk alternatives have crowded out milk
cartons in grocery store beverage cases, pressuring the milk
business. Dean also struggled as grocery sellers like Walmart Inc.
and Kroger Co. opened their own milk-bottling plants, expanding
sales of store-brand milk that is often priced far below branded
milk from processors like Dean.
Pressures are mounting on the U.S. milk sector beyond Dean.
Borden Dairy Co., another Texas dairy company, filed for bankruptcy
in January, also blaming falling milk consumption and retailers'
investment in bargain-priced milk. Battling low prices, thousands
of dairy farmers have closed their milking parlors in recent years,
according to the U.S. Department of Agriculture.
Dean is a huge presence in the U.S. dairy sector, operating 57
plants in about 30 states, and both farmers and supermarket
operators have fretted over the prospect of the company's collapse.
The company's role as a major milk buyer, purchasing about 10% of
U.S. farmers' production, prompted the dairy farmers cooperative
last October to begin discussing a deal to acquire plants and other
assets from Dean.
In addition to the dairy farmers' offer, Dean evaluated nearly
100 other potential buyers after seeking bankruptcy protection and
provided details about its business to 38 of those, according to
bankruptcy-court documents filed Monday.
The dairy cooperative's bid will serve as the floor for the sale
of those Dean assets, according to a company filing ahead of an
April 13 deadline for bids for Dean's business and a potential
auction April 20. "We have had a relationship with DFA over the
past 20 years, and we are confident in their ability to succeed in
the current market and serve our customers with the same commitment
to quality and service they have come to expect," said Eric
Beringause, Dean's chief executive.
"As Dean is the largest dairy processor in the country and a
significant customer of DFA, it is important to ensure continued
secure markets for our members' milk and minimal disruption to the
U.S. dairy industry," Rick Smith, the cooperative's CEO, said.
Dairy Farmers of America, the largest U.S. dairy-farming
cooperative by membership, markets nearly one-third of milk in the
U.S. and operates its own milk-processing plants and dairy
facilities.
Some dairy farmers, wary of a potential conflict of interest
between the cooperative's role as a marketer of farmers' milk and
its own processing operations, have voiced worries about its
expanding further by acquiring much of Dean. The Justice Department
has been probing the deal's potential impact on farmers and
regional milk markets.
In addition to plants from Dean, the dairy farmers' proposal
would include Dean's Mexican subsidiaries and its ownership
interest in a distribution venture with organic dairy cooperative
Organic Valley. As part of the agreement, Dean committed to pay the
cooperative a $15 million breakup fee if Dean ends up accepting a
rival proposal.
Write to Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
February 17, 2020 14:01 ET (19:01 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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