- The U.S. Justice Department's antitrust division approved the purchase of the majority of Dean Food's assets by Dairy Farmers of America following a highly criticized bankruptcy sale.
- A condition of the deal is that DFA will need to divest three Dean plants. The Justice Department and two state attorneys general filed antitrust litigation on Friday in the U.S Northern Court of Illinois to block the sale of the dairy processing plants in Illinois, Wisconsin and Massachusetts.
- "The department conducted a fast but comprehensive investigation, and our actions today preserve competition for fluid milk processing," Makan Delrahim, assistant attorney general at the DOJ's antitrust division, said in a release.
Despite strong opposition and months of concerns about anticompetitive practices plaguing the deal, Dean Foods and DFA were able to finalize the sale. The deal brings the country's largest milk processor under the biggest dairy cooperative in the U.S.
Although a few plants need to be divested to resolve the potential competitive harm that DOJ identified, DFA is still buying most of Dean's plants. The department said Friday its investigation was conducted "against the backdrop of unprecedented challenges in the dairy industry," with major bankruptcies and Dean facing imminent liquidation.
In addition to DFA, Dean also completed the sale of eight facilities and two distribution branches to Prairie Farms Dairy, which the DOJ also reviewed. And last week, it sold other businesses, including Uncle Matt's Organic and Meadow Gold Hawaii brands, before the DFA transaction.
When talks between DFA and Dean began back in November after it filed for bankruptcy, red flags were already being raised about antitrust concerns. Before the sale was approved, Dean dropped DFA from serving as the lead bidder after backlash from creditors.
But about a month ago, a federal bankruptcy court approved the sale of 44 of Dean's plants to DFA for $433 million. A few days after that approval, more than 100 objections were filed opposing the acquisition by DFA, Hoard's Dairyman reported.
After the bankruptcy court approval, it still needed the DOJ to sign off on the deal. Many in the industry told Food Dive they were hoping antitrust officials would stop the sale because it would negatively affect prices and competition.
Because Dean Foods is DFA's biggest customer — with 57 manufacturing facilities and a broad portfolio of milk and dairy brands — farmers and others in the industry are worried about the impacts of this consolidation. In the past, farmers have filed class action lawsuits against Dean, DFA and others for breaking antitrust laws. Although the companies didn't admit wrongdoing, Dean and DFA have settled for millions of dollars.
"A lot of our farmer members in our group are very worried given DFA's past practices, in terms of colluding with processors and non co-ops and hurting not just its own members but hurting dairy industry farmers overall," Anthony Pahnke, vice president of Family Farm Defenders, previously told Food Dive. "We're very concerned with this actor basically getting even bigger."
In March, the antitrust division of the Justice Department wrote to Dean's unsecured creditors that a deal with DFA "appears to pose a serious risk of anticompetitive harm." But the divested plants seem to alleviate that concern.
While waiting for the DOJ to come down with its decision, bondholders from Borden Dairy, which filed for bankruptcy just two months after Dean, proposed merging the two dairy giants if the DFA sale was rejected. Borden's CEO Tony Sarsam told The Wall Street Journal the company was "very disappointed" in DOJ's decision.
"The government must have had their reasons for allowing this to go through," Sarsam said. "But we remain perplexed about why there wasn’t more thoughtful consideration of other alternatives. ... It’s going to make for an unlevel playing field."
The purchase by DFA comes at a particularly difficult time for dairy. The milk industry has struggled for years with challenges from private label, plant-based alternatives and crippling debt. On top of that, the coronavirus has lead to the loss of business in foodservice, which has led to dumping milk and further acceleration of shrinking profits. While there could be numerous synergies achieved from the DFA and Dean deal, it's by no means a smooth path forward for the new entity.