By Lynda Kiernan
Dairy Farmers of America (DFA) has agreed to acquire a substantial share of Dean Foods’ business for $425 million.
If approved by the Bankruptcy Court at a hearing scheduled for March 12, 2020, DFA will serve as a “stalking horse bidder” for the stalking horse assets, which include 44 of the company’s 57 fluid and frozen facilities and all real estate, inventory, equipment and other related assets. DFA’s proposal also includes Dean Foods’ Mexican subsidiaries and its stake in a distribution partnership with the cooperative Organic Valley, according to the Wall Street Journal.
Dean Foods is the largest milk processor in the U.S. with operations in 30 U.S. states and a brand portfolio that includes the likes of DairyPure and TruMoo. The company accounts for the purchase of approximately 10 percent of total U.S. milk production, leading to industry concern when the company filed for bankruptcy in November 2019.
A sharp decline in milk consumption and the shuttering of dairy farms are having a drastic effect. Less than two months later, Borden Dairy Co. followed in Dean Foods’ steps and filed for bankruptcy in January of this year, also citing plummeting dairy consumption as a driver.
Since 1975 U.S. milk consumption has fallen 40 percent, from 247 pounds per person per year, to 149 pounds per person by 2017, according to Statista. Since 1984 milk consumption’s share of eating occasions fell from 15 percent to 9 percent, according to recent data from NPD Group, however, the largest shifts have been happening more recently with the rise in popularity of non-dairy alternatives. In just the last four years, sales of non-dairy alternative products such as almond or soy milk have climbed by 23 percent, according to Nielsen, leading to a 16 percent increase in dairy prices last year, according to the USDA.
DFA being a stalking horse for Dean Foods has some dairy farmer groups concerned about a conflict of interest, seeing as DFA is the largest dairy cooperative in the U.S. with 14,000 members nationwide, and Dean Foods is the country’s largest processor. However, DFA has additional underlying reasons to pursue the deal according to court documents that revealed Dean Foods owed DFA $172,922,316 at the point of filing for bankruptcy.
“Whether the Justice Department will intervene remains to be seen,” Andrew Novakovic, professor of agricultural economics at Cornell University, told Food Dive. ”If it did, it would more likely require some adjustments to the DFA plan, not prevent it altogether.”
The Justice Department is currently investigating the potential for a deal between DFA and Dean Foods to negatively affect the country’s farmers and milk market, reported the WSJ. However, there still is the possibility that DFA will be outbid since Dean examined approximately 100 other potential buyers, providing additional information to 38. If it does play out that Dean Foods accepts an alternate bid, there is a clause included in its agreement with DFA that it would pay the cooperative a $15 million breakup fee.
“We have had a relationship with DFA 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 Eric Beringause, president and CEO, Dean Foods.
– Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and Agtech Intel platforms. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.