Justice Department Approves Sale of Dairy Producer Amid Antitrust Concerns

by Joe Harris, Court House News, May 1, 2020

(CN) – In a move that could transform the dairy industry, the Department of Justice on Friday approved the sale of most of the assets of Dean Food Company to the Dairy Farmers of America, given that the co-op divests itself of some dairy processing plants.

The approval comes in the form of a consent decree that was filed with an antitrust lawsuit in federal court in Chicago.

The $433 million acquisition by the Dairy Farmers of America, the fourth largest dairy cooperative on the planet, could make it the largest dairy company in the United States. Some experts say it will allow DFA to control up to 70% of the country’s milk production.

According to the agreement with the DOJ, the Dairy Farmers of America will hold separate and ultimately divest the dairy processing plants in DePere, Wisconsin, Franklin, Massachusetts, and Harvard, Illinois, together with certain assets related to the operations at each plant. Additionally, Eric Beringause has agreed to step down as President and Chief Executive Officer of Dean Foods.

“We are pleased to complete these transactions, which maximize value for our stakeholders and will enable substantially all of our businesses to continue operating and serving customers across the country,” Beringause said in a statement.

“Our team has put in considerable work over the last several months to find the right partners for our assets that would enable them to continue to succeed while preserving the most jobs possible and to ensure a smooth transition for our customers and partners.”

Dean Foods, the nation’s largest dairy producer, filed for Chapter 11 bankruptcy in November 2019.

The Dairy Farmers will acquire 44 of Dean’s fluid and frozen assets and assume some of the troubled company’s liabilities. Proponents of the acquisition claim it will secure the milk market for farmers and consumers. Opponents argue it will reduce competition and depress the price of raw milk, which will hurt farmers.

The DOJ’s investigation centered on how the takeover would affect two markets – the northeast Illinois/Wisconsin region and the New England region.

“The acquisition would make DFA the largest player in each market, with nearly 70% market share in northeastern Illinois and Wisconsin and over 50% in New England,” the antitrust lawsuit states.

Dean’s already tenuous financial situation was made worse by the Covid-19 pandemic, causing the company – which had $7.75 billion in revenue in 2018 – having to accelerate the bankruptcy process to sell its assets before the company ran out of money.

“In both geographic markets the acquisition would eliminate one competitor, leaving just two remaining competitive options for fluid milk customers, with DFA controlling a significant majority of fluid milk sales,” the DOJ’s complaint states.

“Although there are small or fringe fluid milk processors in each market, these processors are not competitive options for most fluid milk customers because they are much smaller and lack the capabilities necessary to compete against processors like DFA and Dean.”

The consent decree will ensure the continued operation of dozens of fluid milk plants and that service supermarkets, schools, convenience stores and hospitals in both regions.

The DOJ also announced that it was also closing its investigation into Prairie Farms’ proposed acquisition of fluid milk processing plants from Dean in the South and Midwest after concluding that the plants at issue likely would be shut down if not purchased by Prairie Farms because of Dean’s distressed financial condition and the lack of alternate operators who could timely buy the plants.

“This is a tumultuous time for the dairy industry, with the two largest fluid milk processors, Dean and Borden Dairy Company, in bankruptcy, and a pandemic causing demand for milk by schools and restaurants to collapse,” said Assistant Attorney General Makan Delrahim of the Antitrust Division, in a statement.

“In the face of these challenges and Dean’s worsening financial condition, the department conducted a fast but comprehensive investigation, and our actions today preserve competition for fluid milk processing in northeastern Illinois, Wisconsin, and in New England.”

The sale is the latest of high-profile asset transactions that Dean Foods has made in the past month.

On April 4, the U.S. Bankruptcy Court for the Southern District of Texas also approved the sale of Dean Foods’ facility in Miami, Florida, to Mana Saves McArthur LLC for $16.5 million. The company anticipates completing the transaction early next week.

On April 30, Dean Foods completed the sales of its Uncle Matt’s business to Harmoni Inc. and of its Hilo facility and related distribution branches on the Big Island, Kauai and Maui, as well as a license to the Meadow Gold Hawaii brand name and related intellectual property to MGD Acquisition LLC.