Dairy Farmers of America wins bid to buy Dean Foods' assets for $433M

UPDATE: April 23, 2020: Dean Foods announced that MGD Acquisition will buy Dean Foods’ Hilo facility and its related distribution branches, as well as a license to the Meadow Gold Hawaii brand name. The sale is subject to final approval by the Bankruptcy Court. This move comes after Dean Foods said earlier this month that Industrial Realty Group terminated its previously announced agreement to buy Dean Foods’ Meadow Gold Hawaii operation.

UPDATE: April 3, 2020: U.S. Bankruptcy Judge David Jones said in a hearing on Friday that he will approve a sale of most of Dean Foods' assets to Dairy Farmers of America.

UPDATE: April 1, 2020: Dean Foods also reached an agreement for Industrial Realty Group to buy the company's Meadow Gold Hawaii operations. The group will acquire its Hilo and Honolulu facilities and will be partnering with Hawaii-based company 8 Cow Dairies to manage operations.

Dive Brief:

Dairy Farmers of America was named the winning bidder of a substantial portion of Dean Foods' assets in the company's planned bankruptcy sale. DFA will acquire the assets, rights and properties to 44 of the company’s fluid and frozen facilities for $433 million.
In addition to DFA, Prairie Farms Dairy will acquire eight facilities, two distribution branches and other assets for $75 million in cash. Mana Saves McArthur and Producers Dairy Foods will buy facilities located in Miami and Reno, Nevada, respectively. Harmoni was named the winning bidder for Uncle Matt's Organic business.
The bids were accepted following an auction that was under supervision of the U.S. Bankruptcy Court for the Southern District of Texas. The agreements are still subject to final approval by the court and that hearing is scheduled for April 3. The transactions are expected to close at the end of next month.

Dive Insight:

Despite Dairy Farmers of America losing its spot as the stalking horse bidder in Dean's bankruptcy sale, it was still able to win the assets it wanted. Earlier this month, Dean Foods dropped the dairy co-op from serving as the lead bidder after facing resistance from creditors and the bankruptcy judge.

The dairy co-op originally agreed to buy 44 of Dean’s processing facilities and other assets for $425 million and serve as the stalking horse bidder, which would have given the co-op the first bid on the assets. It seems to have been a smart move by Dean Foods to drop DFA as lead bidder since it still allowed the co-op to bid and the company was able to get a slightly more than the original agreement.

Ever since Dean Foods announced it was filing for Chapter 11 bankruptcy in November, the company was already planning to sell itself to DFA. But there have been several hurdles along the way that have complicated the deal. Federal antitrust regulators were probing the potential agreement between DFA and Dean Foods before it was even announced because farm groups had raised concerns about the impact it could have on prices and competition. And farmers filed objections in court to DFA as stalking horse bidder, calling the co-op "the Godfather of America’s National Milk Producers Federation’s milk cartel."

Monica Massey, DFA's executive vice president and chief of staff, told Food Dive in an emailed statement that after many months of uncertainty regarding the future of Dean Foods, they are pleased to be the accepted top bidder. Massey said more than 13,500 dairy farmers who own their cooperative, and dairy farmers across the U.S., will benefit from these milk markets remaining open.

"Throughout this process, our main focus has always been, and continues to be, on maintaining milk markets and limiting disruption to the industry," she said.

With 57 manufacturing facilities and a portfolio of brands including TruMoo and DairyPure, Dean Foods is the largest milk processor in the U.S. DFA has wanted to move fast to buy Dean because it is the dairy cooperative's biggest customer.

But even though DFA has plenty of experience with the milk industry, it doesn't mean it won't still face the same issues that have plagued Dean Foods. Even after many efforts to revive the business, Dean struggled with debt and changing consumer demands. The company faced challenges from discounted private label dairy, increasingly popular alternative products and dropping fluid milk consumption in recent years. The issues aren't unique to Dean. Borden Dairy filed for Chapter 11 bankruptcy in January, just shortly after Dean.

But the deal still isn't guaranteed. Both the bankruptcy court and the Department of Justice will need to approve all of the agreements for them to go forward. As approval hangs in the balance, DFA may want to draw up a plan to alleviate the challenges that led Dean to file for bankruptcy originally so that it doesn't end up in a similar situation.