The purchase of Dean Foods assets by Dairy Farmers of America (DFA) would create a milk processing juggernaut in the Northeast.
DFA announced earlier this month that it intended to buy a substantial portion of Dean’s assets and business, including 44 of the bankrupt company’s facilities and associated direct store delivery systems.
DFA and Dean Foods have been working to reach an agreement since Dean announced its plan to initiate voluntary Chapter 11 reorganization proceedings. The deal remains subject to various approvals, including approval from the Bankruptcy Court overseeing Dean's Chapter 11 reorganization and the U.S. Department of Justice.
Big footprint in the Northeast
The proposed deal would give DFA an outsized presence in the Northeast, especially in Pennsylvania.
The list of Dean plants DFA is buying includes four plants in Pennsylvania, two plants in Massachusetts, and one plant each in New Jersey and New York. DFA already owns six plants in Pennsylvania and one each in Connecticut, Maine, Maryland, New Jersey, New York and Vermont.
Dean Foods milk brands include Swiss Premium, Lehigh Valley and Garelick, among many others.
Bruce Krupke, executive vice president of Northeast Dairy Foods Association Inc., says the proposed deal would give DFA “a lot of control and volume” in a region where they already have a big footprint.
“Dean is a significant player in the Northeast,” Krupke says. “The plants they own are significant buyers of raw farm milk. It is reported they account for 30% of fluid milk sales in the U.S. I’d say it is at least that much here in the Northeast.”
Not a done deal
Andrew Novakovic, agricultural economist at Cornell University, says the proposed deal must clear two major hurdles.
First, the bankruptcy judge must approve the plan, but another entity called the Creditors’ Committee — the largest groups Deans owes money to — could also put forward a plan of their own.
“Generally speaking, the plan put forward by the company that filed bankruptcy is considered the plan to beat, but the judge is responsible for assessing what is the best deal for the owners of Dean Foods debt, considering the viability of the reorganized company as well as the current value of the assets,” Novakovic says.
Another hurdle is getting U.S. Department of Justice approval.
“The Justice Department had previously indicated that it was considering the competitive implications of the largest marketer of farm milk, and a major processing entity unto itself, acquiring the assets of the country’s largest dairy product processor,” he says. “There has been some controversy about the merits of this plan even within the dairy farm community.”
But will it kill the deal? Novakovic says no, but it could require the sale of some assets before giving final approval.
The most practical implications of the deal, though, are what it means for other co-ops that have supplied fluid milk to Dean plants in the past.
One likely consequence of the deal, he says, is the closure or consolidation of some milk processing plants, particularly in Pennsylvania.
“Assuredly, there will be some right-sizing with some plants closing, other plants expanded,” he says, though he doesn’t see the total volume of milk processing in the Northeast changing all that much.