Milk industry transformer, ex-Dean CEO Engles leads team winning bid for Borden

‘New Dairy’ announced as winning bidder for all assets June 15. UPDATE: Sale hearing rescheduled a second time, now set for June 23 at 11 a.m. EDT in Delaware Bankruptcy Court. Milk cooperative SMI files post-auction objection, noting several irregularities with the auction process that had gone private in final days. SMI asserts that their bid on the Winterhaven, Florida plant was not appropriately considered, that they were ignored in the “behind the scenes” negotiations between Borden (debtor) and several other bidders, and that potentially other bidders were also left out of the process due to an alleged lack of transparency and lack of contract and other information needed to formulate appropriate bids.

BordenFilePhoto(KYProducers2015) (1)

Borden milk plants throughout the Southeast, mid-South as far north as Ohio are important for dairy producers like these pictured at the London, Kentucky plant chugging the delicious Borden dutch process chocolate milk during a July 2015 Kentucky Young Producers tour sponsored by KDDC. File photo by Sherry Bunting

By Sherry Bunting, Farmshine, June 19, 2020 edition

WILMINGTON, Del. — A team led by Gregg Engles — the transformative ex-CEO of what was modern-day Dean Foods — is poised to gain control of Borden Dairy Company, which includes six of the 11 plants the DOJ required Engles’ Suiza / Dean merger to divest in 2001 to then DFA-led National Dairy.

Pending bankruptcy court approval, the Borden Dairy Company and its iconic mascot Elsie will be purchased by New Dairy OpCo, LLC. The company referred to as “New Dairy” in court documents was formed June 1 by KKR & Co., a major creditor in the Borden bankruptcy joining forces with Capitol Peak Partners, a firm founded by Engles and his partner Ed Fugger, a former executive with Engles in the 2012 Dean spin off WhiteWave.

Borden named New Dairy as the successful bidder in bankruptcy court documents filed Monday afternoon, June 15.

A sale hearing is rescheduled for Thursday, June 19 (now rescheduled to June 23) in the U.S. Bankruptcy Court of Delaware with Judge Christopher Sontchi presiding.

borden-logo-updated (1)The price to acquire Borden was not disclosed, but creditor KKR offered its sizable debt in the purchase of the assets, according to court documents.

The assets include Borden’s 12 plants in nine states from Ohio through the deep South and Southeast, 91 branches and other assets, as well as the Borden mascot Elsie.

Named by Borden as next-high bidder was GH Acquisitions and Prairie Farms Dairy. On May 1, Prairie Farms, the Illinois-based cooperative marketing products in 14 states, had successfully purchased eight former Dean Foods plants as part of the Southern Foods Group bankruptcy in Houston.

Sources indicate that if the Borden sale to New Dairy is approved by the bankruptcy court Friday, Gregg Engles is the likely new chairman.

Engles, a 1980s Dallas-based ice company consolidator has been referred to as “the great consolidator” turned “milkman to the nation.” He has been credited in various writings with the transformation and consolidation of the fluid milk business, a process that began when he and his partners purchased Suiza Dairy in San Juan, Puerto Rico in the early 1990s.

Engles built Suiza up to over 60 plants by methodically buying the leading plant in a region and those around it to streamline at a time when Wal-Mart and other companies were consolidating the retail grocery sector.

In 2001, Dallas-based Suiza was the largest milk company acquiring the number two Chicago-based Dean Foods. The merged companies operated under the Dean Foods name, and when Howard Dean retired in 2002, Engles became chairman and CEO of the new empire, including the Silk plant-based beverages Engles purchased shares of in 2001 and Dean wholly owned and began expanding in 2002.

The 2001 Suiza / Dean merger, incidentally, led the Department of Justice (DOJ) to require divestiture of about 10% of the two companies’ combined 100-plus milk plant holdings. The 11 identified plants were purchased by National Dairy Holdings, an investor group led by Dairy Farmers of America (DFA), which had 50% ownership at the time it acquired the Dean-divested plants.

By 2009, DFA had over 87% ownership of National Dairy LLC, which had grown to 18 plants with Borden, Dairy Fresh, Flav-O-Rich, Meyer Dairy, Dairymens, Velda Farms and Coburg Dairy brands, and that year sold to Mexico’s largest processor Grupo Lala.

In 2016, Lala spun off National Dairy as Borden Dairy in its new U.S. division through acquisition of Laguna Dairy. In 2017, the Borden Dairy Company transferred to its major investor and current owner ACON Investments.

Six of the 11 plants from the 2001 Dean / Suiza divestiture (two in Florida, one in Kentucky, one in Ohio, one in South Carolina and one in Alabama) are a core of present-day Borden’s 12 plants. National Dairy is also listed as one of the associated legal entities that together comprise the Borden Dairy Company Chapter 11 bankruptcy reorganization filed Jan. 5, 2020 in Wilmington, Delaware.

Both Dean Foods and Borden Dairy Company (National Dairy) have been headquartered in Dallas, Texas since 2001-02.

According to Capitol Peak’s website, where a colorful and complex graphic depicts 30 years of Engles’ experience in dairy industry acquisitions, mergers, capital structure, category expansions and spin offs, Engles not only consolidated the fluid milk industry, but also was instrumental in expanding organic and plant-based brands. These were combined and spun off as standalone WhiteWave in 2012 with Dean retaining a majority interest.

That’s the point in time when Engles left Dean Foods to be chairman and CEO of WhiteWave, which he later sold to Danone for $12.5 billion in 2017 — the year Engles, who sits on the Danone board today, founded Capitol Peak, the entity that has now teamed up with KKR to buy Borden.

At the time of his departure from Dean Foods in 2012, a New York Times article revealed Engles earned as much as $156 million across the post-merger 2002-12 decade with Dean.

Engles’ tenure with Dean Foods also saw the filing of both the Southeast and Northeast class-action Antitrust Lawsuits that alleged anti-competitive behavior between then Dean CEO Engles and then DFA CEO Gary Hanman. Plaintiff dairy farmers alleged the anti-competitive market behavior caused economic losses and structural change that restricted market access as DFA followed a parallel course, building its national cooperative business in a similar regional merge-acquire-streamline fashion as Dean did with milk plants and companies.

According to biographies about Engles, small family-owned dairy companies were attracted to sell to Dean Foods where some could continue to operate with access to capital and technologies. The same has been said by smaller regional milk cooperative members over the years, where a merger with DFA was attractive due to promises of facility upgrades. Not always did those promises come true, and often those markets were swallowed and absorbed.

Both antitrust cases were eventually settled separately by defendants Dean Foods and DFA / DMS. However, a civil case brought in 2016 by farmers who requested exemption from the Northeast “class” is currently headed to jury trial in Vermont vs. defendant DFA / DMS.

The other half of the Borden buying equation — KKR — has a history with the Borden name.

According to Borden’s website and elsewhere, KKR (Kohlberg Krvais Robers), a global investment firm headquartered in New York, had purchased the original Borden Inc. in 1995 for $2 billion and sold off the varied conglomerate in pieces by the time the landmark Suiza / Dean merger occurred in 2001.

Borden as a brand, and Elsie the cow, no longer autonomous, were still popular but faded from the spotlight. DFA began using the brand for cheese, and in 2009, came out with Borden Essentials, including a “Kid-Builders” cheese line. DFA still uses the Borden brand for cheese today.

As noted, the present-day Borden fluid milk and cream business that is being sold in bankruptcy, traces its current business genesis to the April 2001 formation of National Dairy — the group of investors led by DFA to purchase Crowley and Kemps (Marigold), and later that year (November) the 11 plants divested from the Dean / Suiza merger to satisfy the DOJ.

In 2004, HP Hood acquired Kemps and Crowley from National Dairy (with Hood later trading Kemps back to DFA). Other mergers, acquisitions and spin offs as mentioned above eventually left six of the 11 Dean-divested plants among the core of what is now the Borden Dairy Company.

Borden’s current CEO Tony Sarsam, who took the helm in March 2018, was vocal a year ago in a Food Dive article about the company’s renewed direction to refresh Borden’s branding, bring research and marketing to innovation in the fluid milk sector with a commitment to traditional dairy.

BordenOver the past year, Borden come out with new messaging, reintroduced its mascot Elsie to the public with a modern day twist, and launched new products like the “Kid-Builders” line of 2% fat, no sugar added, flavored milks in attractive individual serving chugs for children as well as new whole milk flavors inspired by the Texas State Fair.

In fact, when Borden filed for Chapter 11 bankruptcy protection in January, the company stated in press releases its intention to come out of the restructure stronger. At one point in the concurrent Dean Foods bankruptcy sale, investors and creditors even looked at ways to have Borden buy Dean. A sale of Borden was not on the radar.

Most in the industry could see the handwriting on the wall for Dean Foods as the large national commodity model had been dealt a stiff blow by Wal-Mart on the one hand, consumers seeking ‘local’ regional brands on the other hand and intrusion by non-dairy alternatives reducing volume to some degree in the background.

But Borden’s bankruptcy filing in January caught many by surprise, as did the sale and auction announcement filed with the court May 5, just four days after the Dean sale was consummated primarily to DFA.

In April, Borden had applied for milk contracts through the USDA Coronavirus Food Assistance Program (CFAP), and on May 12, USDA awarded Borden the lion’s share of the contracts — to the tune of $147 million – to distribute milk through the CFAP Farmers to Families Food Box Program May 15 through June 30.

Even so, on May 22, Borden’s auction procedures were announced. The auction closed June 13, with New Dairy announced June 15 as successful bidder, pending bankruptcy approval.

There are no reports at this juncture of any missed payments to Borden direct dairy producers. Several small claims have been filed on the bankruptcy docket by DFA for Borden milk testing at DFA-owned laboratories, and substantial claims have been filed from milk transport companies, including those like NDH Transport that are now part of the overall Borden Dairy Company bankruptcy restructure.

As for federal order pool payments, USDA AMS indicated this week that they will be filing proofs of claim by the July 3 deadline for monies due the Producer Settlement Funds and other FMMO and Dairy Research and Promotion-related accounts, but the amounts were not disclosed. Substantial claims have been filed for these payments in the separate Dean Foods bankruptcy.

Borden’s 12 milk plants are located in Dothan, Alabama; Decatur, Georgia; Miami and Winter Haven, Florida; London, Kentucky; Lafayette, Louisiana; Hattiesburg, Missouri; Cleveland, Ohio; North Charleston, South Carolina; and Austin, Dallas and Conroe, Texas. They are predominantly fluid milk plants, also making cream, condensed and cultured dairy products.

-30-

 

 

 

Borden second major milk co. in 60 days to file Chapter 11

Borden-Dairy (1)

‘Business as usual’ motions face lender objections over how cash reserve is accessed and used. Judge grants Jan. 7 ‘interim’ relief with authority to pay pre-petition ‘critical vendors’, including producers supplying milk. A hearing on the final order in regard to critical vendor payments and cash management is set for Jan. 23.

 By Sherry Bunting, Farmshine, Friday, January 10, 2020

WILMINGTON, Del. — Citing unsustainable debt, including pension funds, negative dairy industry trends, fluid milk category declines as well as margin pressure in a loss-leading, commodity-driven market, the Borden Dairy Company, based in Dallas, Texas, but organized in Delaware, became the second major fluid milk bottler in the past 60 days to file for Chapter 11 bankruptcy protection.

Unlike the November Dean Foods filing with intentions to sell assets, Borden states its intentions are to use the Chapter 11 process to restructure its business for the future.

The company seeks to combine the bankruptcy filings of its 12 affiliated milk plants and one transport company stretching from Texas to Florida and north to Ohio under Borden Dairy Holdings LLC, owned by Acon Investments LLC,which had recapitalized these assets as recently as 2017 when purchased from Laguna Dairy after they were spun off from Grupo Lala.

Processing 500 million gallons of fluid milk annually for customers including supermarkets and schools, Borden employs 3300 people at milk plants in Alabama, Florida, Georgia, Kentucky, Louisiana, Ohio, South Carolina, and Texas. Milk is supplied by dairy producers and milk cooperatives in these and other states.

In addition to licensed brands Borden and Poinsettia, other brands involved include Coburg, Dairy Fresh, Dairymens, Flav-O-Rich, Kid Builder, Saba Sunburst, Sallie’s Southern Tea, Sunburst, and Velda. DFA separately owns the Borden brand license for cheese.

In Delaware District Bankruptcy Court, Wilmington, Judge Christopher S. Sontchi heard Borden’s first day bankruptcy pleadings on January 7.

“Concurrent to the decline of the number of milk producers, dairy processers have seen bottling margins decline due to competitive pressures from milk suppliers and large (and sometimes vertically integrated) customers. Couple this with the fact that … consumption has steadily declined, and it is no surprise that Borden and other dairy suppliers (such as Dean Foods) have begun to feel the same negative effects that have plagued dairy farmers for the past decade,” said Borden Chief Financial Officer Jason Monaco in his declaration with the court.

While all expected motions were filed to allow Borden to continue ordinary business while restructuring under bankruptcy protection — including motions to use a cash deposit reserve to pay pre-petition critical vendors such as dairy producers — attorneys for unsecured creditors objected Tuesday.

The lenders argued that, “(Borden) should not, and cannot, be allowed to use chaos of their own making to distract from the clear facts. There is no economic justification for… sudden chapter 11 filings, and the debtors cannot use the lenders’ (cash) collateral to finance an attempt by Acon to re-trade the out-of-court transaction,” that the parties had previously been negotiating.

The unsecured lenders contend that the bankruptcy filing occurred virtually on the eve of their out-of-court terms being ready for signatures. They contend that the $30 million cash deposit reserve is collateral and that other cash collateral Borden seeks access for operations are “insufficient.”

Acknowledging the importance of Borden continuing operations to preserve equity for all parties, the objecting lenders seek various protections from the court, including a position of consent with some oversight of budgets for the use of cash reserve and payment to critical vendors, including milk producers.

A day earlier, Borden CEO Tony Sarsam cited major milestones for Borden last year, including the revival of its spokescow Elsie, the brand’s reintroduction in Ohio and the launch of several innovative products such as state-fair inspired milk flavors and a new Kid Builder flavored milk line using 2% milk and containing 50% more protein and calcium with no added sugar.

Sarsam also explained in a press release that the company “continues to be impacted by the rising cost of raw milk and market challenges facing the dairy industry” that have contributed to “making our current level of debt unsustainable. He said ultimately, reorganization through court-supervision was the only solution “for the benefit of all stakeholders.”

Court documents reveal that Borden reported 2018 consolidated net sales of $1.181 billion with gross profit of $292 million but experienced operational income loss of $2.6 million and total net income loss of $14.6 million. These losses continued into 2019, with reported operational income loss of $22.3 million and total net income loss of $42.4 million from January 2019 through December 7, 2019, according to court documents.

Borden maintains that its situation differs from the Dean Foods bankruptcy.

“We believe that, from an operational standpoint, we are in a much better position than Dean Foods. Borden is EBITDA-positive and growing, which means we have solid earnings and are healthy,” Sarsam said in a public statement. “Borden intends to continue operations and strengthen our position … whereas Dean Foods announced its intention to sell substantially all of its assets. We are confident that, once we fix our balance sheet, we will be equipped to win together in the market.”

Documents also note Borden’s “need to raise new investor capital” to “continue to innovate with new products, modernize our facilities and equipment and improve Borden’s ability to compete in today’s market.”

The bankruptcy process is still in preliminary stages with more than 45 items filed on the docket within the first 48 hours.

Stating that this bankruptcy reorganization will not affect dairy producer contracts, Borden announced on Jan. 5 that it fully expects business as usual and to move quickly and efficiently through the bankruptcy process.

However, on Jan. 6 and 7, unsecured lenders filed the objections to many of the motions that would allow business as usual – creating potential ripples in that scenario.

As of Wednesday afternoon, Jan. 8, a signed interim order from the Jan. 7 hearing authorizes Borden to maintain its cash systems and bank accounts and provides interim relief to pay certain pre-petition obligations, such as payments to ‘critical vendor,’ including milk suppliers.

A hearing on the final order in regard to critical vendor payments and cash management is set for Jan. 23.

In the meantime, dairy producers supplying milk to Borden plants, are advised they may need to file a proof of claim with the court to be eligible for payment or otherwise consult an attorney for guidance.

The company’s claims agent, Donlin Recano, can provide appropriate forms once a deadline for filing claims has been set by the court. For more information on that, dairy producers can call the Borden restructuring information center toll free at 1 (877) 295-7345 or e-mail bordeninfo@donlinrecano.com.

A special Borden restructuring website contains various documents, including one that answers questions for raw milk suppliers at https://www.bordenfinancialreorg.com/

-30-