- Capitol Peak Partners and KKR & Co. won a bankruptcy auction for Borden Dairy, according to reports and court filings. Borden told Food Dive it can't comment or discuss the transaction until it is approved.
- A joint venture between Capitol Peak and KKR is expected to buy Borden's assets out of bankruptcy. The deal still needs approval from the bankruptcy court. A hearing to approve it is scheduled for Thursday afternoon in Wilmington, Delaware.
- KKR is a major lender to the dairy company and previously owned Borden. Capitol Peak is led by Gregg Engles, a former chairman and chief executive of Dean Foods. Borden named Prairie Farms Dairy as a backup bidder.
About five months after Borden filed for Chapter 11 bankruptcy, the milk giant is being auctioned off to some familiar faces.
KKR and Capitol Peak are no strangers to the struggles facing the dairy industry. If this auction is approved, KKR would be returning to Borden's ownership. In 1995, KKR purchased Borden for $2 billion and took it private after about 68 years as a public company. However, KKR ended up selling off its brands and divisions during the next decade.
The firm did remain on as a lender over the years. When Borden filed for bankruptcy, it reportedly had roughly $250 million in secured debt, with a $175 million loan held by firms including KKR. The private equity firm used what it was owed on the loan toward the Borden bid, according to The Wall Street Journal.
In January, KKR reportedly wasn't pleased when Borden decided to file for bankruptcy because it thought the companies reached an agreement to avoid that, according to court documents cited by the Dallas Morning News. KKR also said the bankruptcy mostly helped another private equity backer, ACON Investments, which took a major stake in Borden in 2017.
Milk companies such as Borden have struggled in recent years with competition from milk alternatives, falling milk consumption, innovative startups and deeply discounted private label offerings. Borden once had a presence in all 50 states, but as of last summer, it offered 35 products in parts of the Midwest, South and Southeastern U.S.
Borden isn't alone in its struggles. Wrestling with mounting debt and struggling to adjust to consumer demands, Dean Foods filed for Chapter 11 in November. The milk giant recently completed its bankruptcy sale where the majority of its assets went to Dairy Farmers of America for $433 million, despite antitrust concerns. Bondholders from Borden proposed merging the two dairy giants if the DFA sale was rejected.
Engles, a former chairman and chief executive of Dean Foods, founded Capitol Peak in 2017, which is serving as the senior partner in the joint venture, while KKR is the junior partner. Engles does have experience taking over rival dairy companies.
Back in 2001, Suiza Foods acquired Dean Foods, its rival at the time, and Engles, who was CEO of Suiza, took over the new Dean. Although the company started out strong, it faced antitrust lawsuits and then watched as milk sales tumbled after the company kept prices high despite a decline in raw milk costs, hurting Dean's business. During Engles' tenure at Dean Foods, his reputation went from being "milkman to the nation" to taking money for himself while his company was struggling. Forbes ranked him among its Worst Bosses for the Buck in 2011, averaging $20.4 million in compensation over six years while Dean's stock dropped an average 11% per year.
When Borden filed for bankruptcy, CEO Tony Sarsam, who took the helm at the company in March 2018, said the milk supplier would use the bankruptcy process to reduce its debt load and continue normal business operations as it reorganized.
During that time, the coronavirus pandemic added additional challenges to an already struggling category. Although the pandemic reportedly forced Borden to furlough 5% of its workers, the dairy company was awarded the USDA's largest contract through its new Farmers to Families Food Box Program to supply 700 million servings of fresh fluid milk to nonprofits. That contract has boosted the company during this difficult time.
Both Engles and KKR are familiar with the struggles facing the dairy industry today so they likely know what they are getting into with this more than 150-year old brand. For the milk producer known for its "spokes-cow" Elsie to have success despite the market challenges, it will likely need a strong plan, cash and patience from its new investors to avoid ending up in the same place again.