Dairy Farmers of America wins bid for Dean Foods

The milk cooperative Dairy Farmers of America has entered into an agreement to buy most of milk processor Dean Foods' assets as part of the latter's bankruptcy proceedings. The $433 million deal for 44 of Dean's facilities was announced Tuesday despite earlier indications that the two parties may have been walking away from a deal. If the merger is approved, DFA will be both the largest milk supplier and the largest milk processor in the country.

"This is a merger that is going to be harmful to consumers and to dairy farmers," said Peter Carstensen, an emeritus law professor at the University of Wisconsin-Madison and a former antitrust attorney at the Department of Justice. "Consumers in some regions of the country … are very, very likely to face higher prices for milk. The resulting DFA dominance will be quite substantial."

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The terms of the deal will grant DFA, the nation's largest milk cooperative, "substantially all of [Dean Foods'] assets, rights, interest, and properties." A few Dean facilities will be acquired by other milk companies.

The deal will still need to be approved by the Department of Justice and the bankruptcy court. DFA also said in a statement that the bid is contingent on reaching agreements with multiple unions. A court hearing is scheduled for April 3; pending court approval, the deal is expected to close at the end of April.

"After many months of uncertainty regarding the future of Dean Foods, we are pleased to have been named the accepted bidder for a large portion of Dean's assets," said Monica Massey, DFA's executive vice president and chief of staff, in a statement. "The more than 13,500 dairy farmers who own our cooperative, and dairy farmers across the country, will now benefit from these milk markets remaining open."

Still, the deal is hardly universally applauded by farmers. A collection of dairy cooperatives filed an objection to the deal on March 9. The co-ops — Lone Star Milk Producers, Agri-Mark, Cayuga Marketing, the Cobblestone Milk Cooperative, the Maryland & Virginia Milk Producers Cooperative Association, and the Michigan Milk Producers Association — together represent 3,000 dairy farms.

They argued that the deal "would effectively consolidate DFA's grip on the national milk market" and would "detrimentally impact all of DFA's competitors, from the largest dairy cooperatives and milk producers, to the smallest farmers." The coops also said that the bidding process for Dean's assets was unfair and "effectively pre-ordain[ed]" DFA as the successful bidder.

In a Tuesday press release, Eric Beringause, Dean's president and CEO, said the company "ran a competitive auction process and [is] pleased to have reached these agreements, which we believe represent the best path forward for our stakeholders."

Dairy farmers weren't alone in opposing the deal. The grocery chains Stop & Shop and Food Lion also filed an objection to the deal on March 9. They, too, argued that the bidding process was unfair, and that the merger of Dean and DFA would "result in a monopoly for raw milk in various markets." The chains said that in some southeastern regions, Dean is already the only processed milk supplier.

Dean and DFA have been accused by farmers in the past of conspiring to monopolize the milk market. Two major lawsuits have resulted in settlements, and another is scheduled to go to trial in Vermont in July.

The DOJ has also investigated the relationship between Dean and DFA. The agency began one investigation in 2004, but it was closed without consequence to the companies in 2006. The DOJ was also reportedly looking into the bankruptcy deal between the two companies in January.

This deal won't do much to allay concerns about DFA's power. The coop already controls about 30 percent of the nation's fluid milk, and Carstensen estimates that if the merger goes through, that share could grow "substantially." He says that the DOJ could still shore up competition in the milk sector by requiring DFA to divest some of Dean's assets or by imposing constraints on the coop's pricing behavior. But he calls these limited reforms "a lousy choice."

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Dean announced that DFA was a potential buyer of its assets when it filed for Chapter 11 bankruptcy last November. Initially, DFA had favored status in the bankruptcy proceedings as the milk processor's "stalking horse" bidder, which essentially meant that any future offers for Dean's assets would have to top the offer made by DFA. Yet in late March, DFA lost this status, and it seemed possible that the deal would fall through. But the deal accepted by Dean this week was very similar to DFA's prior offer.

Dean is the largest milk processor in the country, with 57 processing facilities and numerous household name brands, including Friendly's, Land O'Lakes, TrueMoo, and DairyPure. The company has seen declining sales in recent years, which it has attributed to lower consumption of fluid milk and the rise in popularity of plant-based milk alternatives like almond and soy milk.