- Dairy Farmers of America will no longer serve as the stalking horse bidder for Dean Foods' planned bankruptcy sale, according to documents filed Wednesday with the U.S. Bankruptcy Court for the Southern District of Texas in Houston.
- Dean said it agreed to "mutually terminate" the asset purchase agreement with DFA. Bloomberg reported that Dean abandoned a deal to make DFA the lead bidder following resistance from creditors and its bankruptcy judge.
- The dairy co-op previously agreed to buy 44 of Dean’s processing facilities and other assets for $425 million after Dean filed for Chapter 11 bankruptcy in November. In the documents filed this week, Dean said it still expected DFA to bid for its assets despite losing the position of stalking horse. The deadline to submit a bid is March 30, 2020 at 12:00 p.m.
After objections from farmers and concerns about competition surrounding the deal, DFA will no longer be the stalking horse for the sale of Dean Foods. A stalking horse bidder gives a party the first bid on the assets and sets the minimum amount for which the company could sell.
Although this decision comes about a month after DFA secured the spot as lead bidder, the two organizations have been in talks about a sale for months. When Dean Foods announced it was filing for bankruptcy about four months ago, the company said it was already planning to sell itself to DFA.
Dean Foods is the largest milk processor in the U.S. with 57 manufacturing facilities and a portfolio of brands including TruMoo and DairyPure. It made sense that DFA wanted to move quickly to buy the company because it is the dairy cooperative's biggest customer.
But there were objections to DFA as the lead bidder. An amicus curiae brief filed in the Houston court March 11 on behalf of farmer advocacy organizations, dairy farmers, members of the DFA and shareholders of Dean Foods said these groups vehemently opposed the deal.
"The Court may not be aware; DFA murdered Dean. Granted Dean should not have been hanging around with mobsters," the brief said. "This is in no way hyperbolic. The danger to America’s Dairy Industry, individual dairy farmers and ultimately the consumers cannot be overstated. DFA is the Godfather of America’s National Milk Producers Federation’s milk cartel."
Federal antitrust regulators also were probing a deal between DFA and Dean Foods before it was even announced since farm groups had raised concerns about the impact it could have on prices and competition, The Wall Street Journal reported.
This isn't the first time Dean and DFA have faced antitrust concerns. Farmers filed a class action lawsuit against Dean Foods, National Dairy Holdings, Dairy Farmers of America and others in 2007 for violating antitrust laws. The complaint said Dean agreed to make DFA farmers its only suppliers in exchange for low milk prices. Dean Foods settled for $140 million in 2011, while DFA settled with the others in the suit for $168 million in 2013. Despite the settlements, neither company admitted wrongdoing in the case.
Although dropping DFA as the stalking horse will remove bid protections that favored the dairy cooperative, that does not mean DFA won't still bid on the assets.
Dean Foods said in an emailed statement to Food Dive that it had extensive discussions with all interested parties about this move and has received "broad support." The company said the "mutual decision" to withdraw the request for DFA to be approved as a stalking horse bidder doesn't mean that DFA has removed itself from the bidding process.
Dean Foods said it still anticipates DFA to submit a bid by the court-imposed March 30 deadline.
"Dean Foods simply believes that, by avoiding unnecessary litigation regarding procedure and bid protections for DFA, all parties involved, including DFA, will focus on developing competitive and value-maximizing bids," the company said.
Overall, it is a difficult time for the dairy industry. Dean isn’t the only milk producer facing severe financial struggles. Borden Dairy filed for Chapter 11 bankruptcy in January. Even though demand could see a slight increase as consumers stock up on dairy because of the coronavirus pandemic, analysts say it ultimately will just cause more challenges in the long term.
For decades, milk consumption has been declining as other drink alternatives and plant-based options pull away consumers who once turned to the beverage. As the struggles continue, Dean Foods likely wants to complete its bankruptcy sale as soon as possible before things worsen even more.