• by Thom Forbes , February 18, 2020

Dairy Farmers of America, the national milk marketing cooperative of family-owned farms, has reached a deal to buy the bankrupt Dean Foods for $425 million if federal regulators approve and the bankruptcy court sanctions the agreement.

“Dean Foods’ portfolio includes national brands DairyPure and TruMoo, along with regional brands including Alta Dena, Berkeley Farms, Country Fresh, Dean’s, Friendly’s, Garelick Farms, Land O Lakes, Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold and Oak Farms. It also makes private label dairy products, ice cream, cultured products, juices, teas and bottled water,” Paul O’Donnell writes  for The Dallas Morning News.

“Dean filed for Chapter 11 bankruptcy in November as the business struggled to attract consumers who have instead turned to nondairy milk or private-label products. At the time it filed for bankruptcy, Dean had reported a net loss in seven of its last eight quarters,” CNBC’s Amelia Lucas writes.

“If approved by the bankruptcy court [at a March 12 hearing], the agreement would make the Dairy Farmers of America the stalking horse bidder, meaning that the transaction would be subject to receiving higher or better offers while the company is in bankruptcy. The company is also talking with other buyers interested in plants and assets not included in the deal with the co-op,” Lucas continues.

Antitrust regulators, who already have been looking at the potential deal, will be analyzing the particulars of the agreement.

“So far, much of the antitrust scrutiny has focused on the co-op’s evolving role in the American milk business. Two decades ago, Dairy Farmers of America was founded to help small farmers market their raw milk to dairy processing companies like Dean Foods, which prepare milk for distribution to retailers,” David Yaffe-Bellany writes  for The New York Times.

“But over the years, the co-op, which now has more than 14,000 members, has also invested heavily in processing, meaning it buys some of the raw milk that its own marketing branch sells. Those investments have created a conflict of interest, some dairy farmers argue, because processors benefit from lower milk prices, while farmers benefit from higher ones,” Yaffe-Bellany adds.

“Dallas-based Dean’s losses piled up after its biggest customer, Walmart, built its own milk plant, with the rising price of raw milk further eroding margins. Demand for cow milk has been weak, too, with nut milks and even bottled water cutting into its popularity. Another large dairy processor, Borden Dairy Co., filed for bankruptcy shortly after Dean,” Bloomberg’s James Attwood writes.

“The DFA cooperative will be betting on the benefits of vertical integration to turn around the financial performances of the operations. … When Dean filed for bankruptcy in November it said it was in ‘advanced’ talks with DFA regarding a potential sale. At the time, some Dean bondholders expressed concern that the company was rushing into a combination with DFA at the expense of other options. According to Dean’s website, it has more than 60 local processing plants,” Attwood continues.

“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,” Jacob Bunge observes  for The Wall Street Journal.

“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,” Bunge adds. 

“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,” Dean Foods CEO Eric Beringause states  in the news release announcing the agreement. 

“Dean Foods said it’s in discussion with other parties for plants and assets not included in the Dairy Farmers of America agreement. Court documents indicate its investment banker, Evercore Group, received interest from 99 strategic or financial buyers after the bankruptcy filing,” The Dallas Morning News’ O’Donnell reports.  

Indeed, if you think nut milk is a passing fancy and there are still more profits to be pumped from Dean, you’ll have till March 31, at 3 p.m. Central, to enter your bid for the assets DFA is eying.