Dean set to sell 44 milk facilities

Dallas-based Dean Foods has reached a $425 million deal to sell 44 of its milk processing facilities to Dairy Farmers of America as part of a court-supervised sale of company assets.

Dean Foods, which filed for bankruptcy in November, described the agreement as covering a “substantial portion” of its operations. The company has 57 manufacturing facilities in 29 states.

“We have had a relationship with [Dairy Farmers of America] 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 a statement from Dean Foods Chief Executive Officer Eric Beringause.

The deal is likely to draw scrutiny from government antitrust regulators.

Under the deal, Dairy Farmers of America also agreed to make job offers to Dean Foods workers at the 44 facilities. Dean Foods has about 15,000 employees nationwide.

The deal must be approved by a federal bankruptcy court overseeing Dean Foods’ asset sales. A hearing on the agreement is scheduled for March 12. Dean Foods can entertain higher bids for the 44 facilities until April 13.

Dairy farmers have argued that a merger would reduce competition and suppress the price of raw milk. But the co-op says its deal will help farmers by guaranteeing that there will be buyers for their milk at a time when milk consumption is declining nationwide.

So far, much of the antitrust scrutiny has focused on the coop’s evolving role in the American milk business. Two decades ago, Dairy Farmers of America was founded to help small farms market their raw milk to dairy processing companies such as Dean Foods, which prepare milk for distribution to retailers.

But over the years, the co-op, which now has more than 14,000 members, has also invested heavily in processing, meaning it buys some of the raw milk that its own marketing branch sells. Those investments have created a conflict of interest, some dairy farmers argue, because processors benefit from lower milk prices, while farmers benefit from higher ones.

Not all dairy farmers are opposed. And executives who negotiated the deal argue that bringing together the two milk giants will keep the market stable.

“It is important to ensure continued secure markets for our members’ milk and minimal disruption to the U.S. dairy industry,” Rick Smith, chief executive of Dairy Farmers of America, said in a statement Monday.

Dean Foods said it’s in discussion with other parties for plants and assets not included in the Dairy Farmers of America agreement. Court documents indicate its investment banker, Evercore Group, received interest from 99 strategic or financial buyers after the bankruptcy filing.

As the nation’s largest dairy producer, Dean Foods spent much of last year in search of a buyer as declining milk consumption and competition from high-volume retailers such as Walmart ate away at its core business. Milk consumption has steadily fallen in the U.S. since the 1970s.

Dean Foods has been operating with $850 million in courtapproved financing backed by its debt holders. The International Brotherhood of Teamsters, which represents about 5,000 of the workers, has asked the court to reject the company’s plan to award $37.75 million in bonuses to more than 2,000 supervisory and salaried employees.

Dean Foods’ portfolio includes national brands DairyPure and TruMoo, along with regional brands including Alta Dena, Berkeley Farms, Country Fresh, Dean’s, Friendly’s, Garelick Farms, Land O’Lakes, Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold and Oak Farms. It also makes private-label dairy products, ice cream, cultured products, juices, teas and bottled water.

A few months after Dean Foods’ bankruptcy, another Dallas-based milk company took a similar path, citing “unsustainable” debt.

The 163-year-old Borden Dairy Co. initiated bankruptcy proceedings in January. Founded in 1857, it was the first milk company to use glass milk bottles. Its 12 processing plants distribute nearly 500 million gallons of milk every year.

The possible Dean Foods deal is not the only source of the antitrust scrutiny facing Dairy Farmers of America. Justice Department officials have also been speaking with the lawyers behind a lawsuit in Vermont that accuses Dairy Farmers of

America of engaging in a variety of anti-competitive practices, including striking deals with other co-ops to not poach one another’s members.

The co-op has denied those allegations. But in September, a judge allowed the case to move to trial, writing in her decision that the plaintiffs had presented evidence from which a “rational jury could conclude that the D.F.A. management favored growth of its commercial operations and empire building over the interests of its farmermembers.”