Feb 18, 2020
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, requires approval of the bankruptcy court and the U.S. Department of Justice.
If consummated, it 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.
Dean’s bankruptcy followed a years long 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.
To learn more about Dairy Farmers of America, visit their website.