More open bidding process, accelerated timetable underway for sale of Dean Foods plants

By Sherry Bunting, Farmshine, Friday, March 27, 2020

HOUSTON, Texas – Changes have officially been made to the bidding procedures originally sought by Dean Foods in the conglomerate’s Southern Foods Group Chapter 11 bankruptcy and sale in the Southern District of Texas.

In a very brief continuation of bidding procedures hearing on March 19, U.S. Judge David R. Jones said he would sign an order that outlined the new procedures and accelerated timetable for bankruptcy and sale proceedings. A cover story in last week’s Farmshine described the concerns and changes that led to the new order.

On the evening before the hearing, Dean withdrew its original proposal for Dairy Farmers of America (DFA) to be designated as stalking horse bidder, essentially dissolving key elements of the Feb. 17 Asset Purchase Agreement with DFA on 44 of Dean’s 57 plants.

This move to a “value maximizing” sale process opens the bidding to more opportunities for additional single- and multi-plant bids as well as a potential restructuring bid.

Bids are due by Noon CDT on March 30, 2020, with Dean declaring winners shortly thereafter.

Objections to a sale order or transaction are to be filed in writing by April 1, 2020 at Noon CDT.

A hearing to consider the proposed sale transaction will be held before Judge Jones on April 3, 2020 at 9:00 a.m. CDT.

Attorneys and consultants for interested parties worked together at the suggestion of Judge Jones to modify the original proposal after objections were raised by the creditors committee, potential buyers of Dean assets, and more than a half dozen dairy cooperatives. Their concerns focused on the lack of fairness and transparency in the previously proposed bidding process that sought to designate DFA as lead bidder with protections for its 44-plant bid.

The order at the case docket does not remove DFA as a potential bidder but opens the process by not designating DFA as the stalking horse bidder.

More information can be found at the website for the Southern Foods Group case at https://dm.epiq11.com/case/southernfoods/dockets and at https://deanfoodsrestructuring.com/

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Judge insists on open, transparent, fair process in sale of Dean Foods assets

Dean-plantsBy Sherry Bunting, Farmshine, Friday, March 20, 2020

BREAKING NEWS UPDATE: After the below story about the March 12 bidding procedures hearing was written and filed with Farmshine for yesterday’s press deadline, docket 1167 — posted late last evening — shows that a motion was filed ahead of today’s anticipated hearing to modify the proposed bidding procedures and withdraw the prior request for DFA to be Stalking Horse Bidder in the sale of Dean Foods assets, noting that DFA will remain a potential bidder in modified proposed bidding procedures. Docket 1167 states in part:…after extensive discussions, DFA and the Debtors (Dean Foods) determined to proceed without being the Stalking Horse Bidder and without Bid Protections. Accordingly, the Debtors (Dean Foods) are withdrawing their request for approval of DFA as a Stalking Horse Bidder, and any approval or authorization of the Stalking Horse Asset Purchase Agreement or Bid Protections. Critically, this withdrawal by the Debtors (Dean Foods) of their request for a Stalking Horse Bidder does not signal a withdrawal by DFA from the bidding process, and the Debtors (Dean Foods) expect and believe that by avoiding litigation over procedure, all parties-in-interest, including DFA, will focus on developing competitive and value-maximizing bids. In addition, the Debtors (Dean Foods) have been working around-the-clock to respond to continuing data requests from the Ad Hoc Group in an effort to provide that key constituency with all of the information needed to formulate a bid…”

HOUSTON, Tex. – Last Thursday (March 12) a hearing here on the Southern Foods Group bankruptcy considered a motion to approve Dairy Farmers of America Inc. (DFA) as “stalking horse bidder” and to set bid procedures outlined in the Dean Foods / DFA $425 million Asset Purchase Agreement covering 44 of Dean’s 57 plants.

Judge David R. Jones instead asked for Dean Foods to come back with a sale process that is “open, transparent and fair to everyone.” He also set a hearing for Thursday March 19 to revisit new bidding procedures and protections sought by DFA,

Judge Jones also expedited proposed sale dates, indicating March 30 at Noon as a deadline for bids to be submitted, a quick turnaround for Dean to “declare winners” ahead of April 1 for parties to file objections, and April 3 as a sale hearing. Dean confirmed this week  that these are the dates they are working with pending the March 19 hearing outcome.

Part of the reason for expediting dates in a more “open” bidding process is the company’s liquidity concerns in the face of financial and commodity market challenges due to school closings and other supply chain happenings related to novel coronavirus / CoVid-19.

It was revealed that 22% of Dean Foods’ sales – approximately $52 million per month – is school milk and foodservice sales.

In separate inquiries this week of several fluid milk processors, including Dean Foods, a surge in demand for milk is being reported that began last Friday when widespread school closings were also announced.

This surge in store demand is currently more than making up for any losses due to school closings in the short-term, but uncertainty is the cloud over everything, especially in this bankruptcy sale where liquidity provided by a combination of cash flow and bankruptcy financing was projected on March 6 to last through June after being projected last fall to last through July. It was noted that recent events may further compress these liquidity projections, an important factor to keeping the bankruptcy from falling into a Chapter 7 category.

In the three-hour hearing with two recesses for parties to confer, Judge Jones heard from counsel representing Dean Foods, DFA, an ad hoc committee for dairy cooperatives, and committees of creditors, bondholders, labor unions and others.

Department of Justice concerns over specific plants included in the 44-plant DFA bid were also referenced, but not explained or detailed, and the Judge expressed his desire to see the winning bid mix handled in a way that would be open to potential regional buyers for single plants and in a way that puts forward the best “mix” that returns the best value, while also keeping the jobs going and milk flowing, and hinges on satisfying any known DOJ concerns.

It was indicated that communication between DFA and DOJ and Dean and DOJ have been ongoing since October.

Essentially, the Judge asked Dean Foods to provide information needed by bondholders working on a potential restructure, to simplify the bidding procedures so that anyone who is not a bankruptcy attorney can understand them, and to provide the opportunity for potential buyers to bid on one plant or multiple plants.

Judge Jones again issued a plea for all parties to work together in the sale of the company he said is in everyone’s best interests to see continue and is “important to our country.”

“I am giving you full flexibility to propose and handle this however you want to handle it and reserving flexibility to drive this process if I have to,” said Judge Jones, indicating that he hoped an auction would not ultimately be necessary on all assets.

Throughout portions of the hearing, counsel for Dean indicated the need for bid protections for DFA, given their work in putting together the first actual sale plan covering a majority of assets.

Part of the “stalking horse” status sought for DFA by Dean’s original motion was to include “break up” fees averaging $15 million per plant that would have to be paid by bidders winning plants in an auction situation and pulling them out of DFA’s 44-plant bid. Judge Jones wasn’t convinced that breakup fees were necessary; although he did indicate that DFA should receive something for their contribution in putting together the first bid for a substantial portion of Dean’s assets to get the process moving – something no other entity has done to-date.

In fact, Judge Jones stated that he was less concerned about breakup fees than he was about the bidding process itself.

Counsel for the creditors committee said they were receiving broad interest from potential bidders on single or multiple plants, but that without a fair and open process and without documents needed to formulate bids, these potential bidders would be operating in the dark or unable to participate.

Judge Jones said that, “It’s theoretically possible to cobble together bids for individual plants (in the asset mix), and they are all telling me they are not getting a fair shake because you won’t give them the opportunity to make a bid for one or two or three plants,” said the Judge. “My way does that.”

He said that they (DFA) aren’t going to get copies of the other bids and that DFA would not have to break down their bid to a plant by plant pricing.

“No way, that’s not going to happen. I am trying to give examples of how unhappy I am with this process. I hear you trying to talk me out of it, and I assure you, I am far more stubborn than you,” said the Judge. “At the end of the day, I get to be right or wrong.”

With the expedited bid deadline — a date certain when every interest would put its best bid forward for a single plant or multiple plants — everyone involved would see everyone else’s bid at the same time, and they would be made public.

In essence, no one got everything they wanted, and everyone got something they wanted in the new process parameters set forth by the Judge to be revisited at the hearing this week (March 19).

Interests pleading for time to put together a bondholder restructure did not get extra time, and interests looking for special protections to streamline majority assets going to DFA did not get that either.

Judge Jones asked no less than three times: “Why do you need an auction at all?”

He said further that Dean has “the best advisers in the world. You have gan asset mix that is incredibly hard to have an auction on to be fair. Let’s set a deadline for everyone to put their best foot forward by that date (potentially March 30 Noon), then you put together the best deal (the best mix of winning bids March 31) and ask me to approve it (potential sale hearing April 3), and if someone has an issue with it, they can stand up and take their shots (objections by April 1). This forces people to put up or shut up.”

Bottom line, said the Judge, “I want a fair and open process, not just for two parties, but for all parties.

“I am not going to lawyer this deal, but I want a process where… everyone gets a shot. The (process) that you have outlined doesn’t do that,” he said of the bidding procedures in Dean’s motion.

In the bankruptcy proceedings, all proof of claims are due by March 27 with the first omnibus hearing still on the court calendar for March 30, followed by another on April 22. Information is available at https://deanfoodsrestructuring.com/ and dockets can be found at https://dm.epiq11.com/SouthernFoods

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Co-ops seek bid process modifications, object to ‘stalking horse’ status in DFA bid for 44 Dean plants

Dean-DFA-plants4

dfa-fmmo (1)

6 co-ops covering 3000 farms and 10% of milk cite bid barriers, antitrust concerns, detrimental impacts

By Sherry Bunting, Farmshine, Friday, March 13, 2020

HOUSTON, Texas – New ripples emerged this week in the Dean Foods Company (Southern Foods Group LLC) Chapter 11 sale proceedings in the bankruptcy court of the southern district of Texas.

Just three days before the March 12 hearing on Dean’s motion to approve DFA as “stalking horse bidder,” an ad hoc committee for dairy cooperatives filed a limited objection on Monday, March 9 regarding the Feb. 17th DFA-Dean asset purchase agreement that covers a majority of Dean’s assets.

If Judge David Jones grants stalking horse status to DFA’s $425 million bid for 44 of the 57 plants and other itemized assets and liabilities, this would become part of the bidding procedures, which the March 12 hearing is expected to further outline, and it would provide certain protections to DFA’s initial bid.

“A potential sale of assets to Dairy Farmers of America Inc. (DFA), if approved, would effectively consolidate DFA’s grip on the national milk market. The ripple effects of the sale will detrimentally impact all of DFA’s competitors, from the largest dairy cooperatives and milk producers, to the smallest farmers,” the objection stated.

“For exactly this reason, the ad hoc committee, which includes certain creditors of (Dean) and competitors of DFA, was formed to… monitor the Chapter 11 cases, examine the impact that a sale to DFA would have on their businesses, and to the greatest extent possible, ensure that some semblance of fairness remains in the competitive process for the benefit of all dairy cooperatives,” the objection stated.

The ad hoc committee represents what is described as a broad cross-section of U.S. farm milk, covering over 3000-member dairy farms producing nearly 10% of the nation’s milk.
Six cooperatives are listed in the objection, and they have a mix of circumstances — one is a creditor of the debtor (Dean Foods) some are non-creditors except for non-pool payments that are owed, some are current suppliers of Dean Foods, and some are competitors in retail milk distribution.

According to the objection on the case docket, the six co-ops are:

• Lone Star Milk Producers, Inc., based in Wichita Falls, Texas with 120 member farms in eight states, marketing 1.9 billion pounds of milk annually;

• Agri-Mark Inc.,with 850 member farms in New England and New York marketing 3.3 billion pounds of milk annually;

• Cayuga Marketing, LLC, based in Auburn, New York with 30 member farms producing 1.3 billion pounds of milk annually;

• Cobblestone Milk Cooperative, Inc., Chatham, Virginia with 19 member farms from Virginia to Georgia marketing 0.6 billion pounds of milk annually;

• Maryland and Virginia Milk Producers Cooperative Association Inc., with 930 member farms in multiple states of the Midatlantic and Southeast producing 2.5 billion pounds of milk annually; and

• Michigan Milk Producers Association with 1300 member farms in Michigan, Ohio, Indiana and Wisconsin producing over 5 billion pounds of milk annually.
The limited objection seeks to address “certain fundamental flaws in the bidding procedures,” which “exacerbate the antitrust issues that plague the debtors’ proposed sale to DFA.”

• In a separate action, Southeast Milk, a Florida-based dairy cooperative also filed a similar objection this week.

At the start of the Chapter 11 cases that were all lumped together under Southern Foods Group LLC, the debtors, Dean Foods, proclaimed intentions of expanding the sale and marketing process and of exploring restructuring alternatives. Instead, the objection asserts that Dean Foods “spent months negotiating and finalizing proposed bidding procedures with DFA that only serve to create unnecessary competitive issues.”

Cited barriers to competing bids included the multi-step qualification process and compressed time frame that make it difficult for others to bid, including the use of terms that are not defined.

“Perhaps by design, these procedures make it a foregone conclusion that DFA will be the successful bidder for all stalking horse assets, even assuming that an auction were to occur,” the objection states.

On these and other grounds, the ad hoc committee for dairy cooperatives filed the limited objection and submitted that, “The proposed bidding procedures are not reasonably designed to secure the highest and best bid for the sale of the bid assets.”

While the debtors assert their proposed bidding procedures were designed to facilitate a flexible, robust and competitive bidding process, the objection asserts that, “The debtors have closely held all sale-related information and other information that they consider to be potentially confidential.”

In addition, objections are raised about the bidding procedures being “strategically crafted to prevent any of the stalking horse assets (44 plants) from being siphoned off by DFA’s competitors and broken down into auction lots that could yield a greater aggregate sale price for the debtors’ estates.”

The breadth of the DFA-Dean asset purchase agreement is a barrier if approved as ‘stalking horse’ assets because few, if any, bidders could compete on those assets collectively — keeping potential regional buyers that could be affected by the outcome from actually bidding.

Several modifications are requested, including how qualifications are set, how much discretion is given to Dean on separating auction lots, extension of the time frame, and a dual track auction process that would provide for back-up successful bidders and back-up alternate bidders for auction lots as separate sale transactions in the event that the DOJ does not provide the necessary regulatory approval for the sale to DFA.

Stay tuned.

 

While Dean negotiated with DFA, other interests requested documents they never received

Dean-DFA-plants3Antitrust issues at core of motion to form equity holders committee

By Sherry Bunting, Farmshine, Friday, March 6, 2020

HOUSTON, Tex. – Ahead of next week’s hearings on the Dean Foods Company (Southern Foods Group LLC) bankruptcy and sale, it is illustrative to review the motions hearing of Feb. 19. On tap for March 12 is the hearing to consider DFA as “stalking horse bidder” with the asset purchase agreement DFA and Dean agreed to on Feb. 17 involving 44 plants at a $425 million bid as reported Feb. 21 in Farmshine.

Also on tap next week is a hearing set for March 10 on the motion presented by Joshua Haar to form an adhoc committee of shareholders.

During the Feb. 19 motions hearing, there was extensive discussion about professional bonus payments to keep top staff on board during the bankruptcy. An attorney representing the Teamsters Union challenged these retention bonuses in the face of knowing union contracts will be renegotiated by new buyers, especially if the buyer is DFA.

The bottom line in that exchange was summed up by Judge David Jones’ comment that he is guided by his own interpretation of the numbers, trusts his own bankruptcy experience and skill sets and has clear concern that all parties should work together to see that the assets of Dean Foods continue to operate. Period.

In fact, Judge Jones often chided attorneys to talk in terms of the “practicality” of the situation above their own “strategically” motivated interests.

“I need what’s left of this company to be comfortable and stay in place,” said Jones. “We need to get to a sale process and have people see the opportunity for future jobs to stay in place.”

He showed low tolerance for any party expecting to get 100% of what they have gotten in the past (except for retaining the “critical institutional knowledge” provided by professional staff receiving bonuses), and he indicated that the retention bonus payments are necessary in that regard, giving him “some comfort that we may actually make the end of this because good people will stay in place.”

The Teamsters’ concerns were for financial awards and windfall profits to “talent at the top” while their member employees become creditors owed vacation and so forth.

To understand how Judge Jones views the national fluid milk model of Dean Foods, he said: “This is a business model that worked in the 60s and doesn’t work in 2020,” he said. “I could give a first-year business student this business model and they would look at me and say this is a model that doesn’t work.”

Judge Jones asked during motions, “Why not be hand-in-hand on this issue? I do not want to be responsible for school children not getting their milk, that means a lot to me.”

Saying that the Unions have overstepped in trying to prevent the payment of retention bonuses to professionals that constitute “institutional knowledge,” Judge Jones granted the debtor’s (Dean’s) motion to approve the “key employee retention plan” consisting of a schedule for paying these bonuses.

This exchange about “working together” — with the goal of keeping Dean assets operating — set the stage for Judge Jones to hear a motion by Joshua Haar to form an ad hoc committee of equity holders (shareholders). Haar is the attorney son of Jonathan and Claudia Haar, the New York dairy farmers who were part of the original representatives of the dairy farmer class in the previously settled Northeast Class Action Antitrust Lawsuit against DFA and Dean Foods.

Before hearing Haar’s motion, Judge Jones said he is “getting a sense of urgency,” in regard to seeing an end point and that he did not want to entertain motions that “extend the case on the backs of the vendors, including the farmers supplying the milk.”

In other words, he did not want to see the timeline of this case extended for an “exercise” that did not materially provide a practical solution.

Judge Jones offered to hear Haar’s motion the very next day, for which Haar said he would not be ready. Asking Haar if one hour is sufficient, Judge Jones set hearing on the appointment of an equity committee at 3 p.m. March 10 – two days before the March 12 hearing on the DFA “stalking horse” bid.

As part of this discussion, it was noted that the ad hoc committee of bondholders wanted time to put a plan forward, that they are “actively working on the financing and need time for equity holder involvement,” said Haar.

“On this equity committee request, there will never be an equity recovery here,” said the Judge. In fact, he added later that equity or share holders in Dean Foods, a publicly traded company “are in the worst possible place. If the debtor’s numbers are right, their money was lost years ago, and this is an event that recognizes history.”

Haar’s lengthy motion described milk supply chain and potential antitrust issues inherent in a DFA purchase, seeking time for other options to surface.

Judge Jones said he read the motion, but added: “I want you to understand the standard that is required for an equity committee. I’ll always give you the opportunity to talk and give the shareholder’s view of the world, but if you are looking for a committee, that’s a tough burden, and I expect you not to waste everyone’s time.”

He warned against a prepared speech of “just words… Telling me all the things you might do that are eloquent, I tend to be more blunt… especially when I tell people what’s coming and they choose to ignore it. I want you to represent your people. This is about people. But that’s what I expect.”

He expects an equity holders committee to be able to contribute to the process of the Dean Foods reorganization and sale, not to use one group of stakeholder for the sake of others.

Haar indicated that among the equity holders are persons and entities “connected to 15% of the U.S. milk supply” so in that sense this motion was not trying the milk supply antitrust concerns but rather what could be a legitimate consideration of a better way to move forward with offers that could potentially allow equity holders to participate in value recovery.

It was apparent that Judge Jones needs to be convinced with numbers and math and actual bids that can be consummated in the next few months, not the eloquence of ideas about what can or should or could be some time in the future.

Harr said of the motion that, “We can add significant value to the estate.”

With that, the hearing for Haar’s motion was set for March 10 with response motions due March 3.

Next up in the vein of “other options” was the existing creditors committee. Their attorney indicated concern as to how the asset purchase agreement negotiations with DFA took place.

“They got bid materials. We issued requests for these materials. The debtor (Dean Foods) wanted to share these materials but were unable to share them with us because DFA put a confidentiality clause on it,” said the attorney for the Dean creditors. “We did a letter writing campaign. DFA would not agree. We did file an emergency form to compel the bid materials, and an hour before the bid deadline, the documents flowed to the advisors for the committee.”

In other words, too late to analyze the issues.

As the negotiations between Dean Foods and DFA continued, the creditors committee apparently repeated its requests for information and were told “no.”

 

Finally, a week before the Feb. 19 motions hearing, they received a two-page slide packet from DFA that “gave very little information and did not give the information about what Dean plants were included and excluded in that asset purchase agreement until it was announced publicly.

“The creditors committee’s initial impression is negative,” said the attorney representing the committee, indicating it will be heavily contested. “First and foremost, we are concerned about aggregate consideration… it is not clear that there is enough (in the bid) to pay-in-full the creditors.”

She mentioned that DFA, in addition to seeking stalking horse bidder status, is also a large creditor of Dean Foods with significant payables and that their bid could represent a “dollar-for-dollar deduction in value of assets to cover their claims.”

The Judge was un-moved. “If integration fixes the problem, then we ought to be working on integration,” he said, telling the DFA lawyer to work with the lawyer for the creditor committee. “Get her at your table,” he said.

The response from counsel for the creditors was that they want a seat at the table and would “engage in good faith, but there could still be a contested hearing on March 12.”

Attorneys for DFA and Dean indicated engaging in dialog with the DOJ on antitrust issues.

A potential bondholder bid was also referenced. The attorney for the creditors said the bondholders have done a “tremendous amount of work looking into financial investment into the company. We are hopeful the process can get there before March 12 with a more value-maximizing offer than the one on the table now.”

But again, it was mentioned that a “critical piece of information is still missing. There is some information that the ad hoc bondholder committee needs that the debtor is not willing to provide and we implore the debtor to turn it over now so the bondholders have the information. The next two weeks are critical.”

One item needed is “milk payables. We need to see, or the financiers need to see that, and it has been difficult getting it provided to us for third-party financing.”

Judge Jones offered his office as mediator for emergency hearings to get that flow of documents moving in the event that having the information allows other bid processes to go forward.

In short, the creditors committee, ad hoc bondholders committee and lenders were “left out of the information flow” during the Dean negotiations with DFA on their asset purchase agreement. They all read it at the same time (when it became public on Feb. 17) and are looking for a bid with more value to come in.

Judge Jones turned to the Dean Foods attorney and said “you took this in and you know what to do. I am trying to convey my sense of urgency here. Let’s figure out how to move the process forward. We all have the same goal.”

(Facilities in South Dakota, North Dakota and Minnesota — where Dean bottles under the Land O’Lakes brand — are excluded from the DFA-Dean asset purchase agreement. The licensing of the Land O’Lakes brand elsewhere is also excluded.)

plants in deal

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The time has come to disrupt the disruptors

Opinion: Dean bankruptcy offers opportunity we should earnestly pursue

By Sherry Bunting, Farmshine, Friday, Nov. 29, 2019

If ever there was a time for state governments to sit down with their dairy farmers and agriculture infrastructure for a meeting of the minds… it is now.

The future is very much at stake with Dean Foods – the nation’s largest milk bottler – in Chapter 11 bankruptcy and sale proceedings, as the industry is largely signaling the buyer should be DFA.

But not so fast.

This could be an opportunity to look at the strength of Dean’s holdings and consider a different path forward, one that returns some of the regional branding power to farmers and consumers in the regions served by Dean’s 60 milk processing plants.

Dean Foods accounts for one-third of the milk bottled in the U.S., and the roots of its holdings go back to family operations with brands that were once – and some still are – household names.

In focus groups and shopper surveys, consumers demonstrate they understand what it means to buy local. They understand that buying local – especially fresh staples like milk – means keeping their dollars working in their communities. Consumers also say they want to help local farms. And they want to see clear labeling to know where their milk comes from.

Meanwhile, surveys show the gallon and half-gallon jug are still the most popular packaging among real milk buyers. Even though the category as a whole is declining, it is still a huge category and one that has not been tended or nurtured or cared for in more than a decade. In fact, the category has seen the deck stacked against it by government rules and government speech.

Taste is also important to consumers, as is nutrition. Where fluid milk is concerned, these two areas have also been lacking because checkoff-funded promotion became government speech that pushed fat-free and low-fat milk to the point where consumers have no idea what real milk tastes like – until they switch to whole milk, and they are.

Folks, this is an opportunity to chart a new path for fresh fluid milk, to breathe some life into it. We see it in whole milk sales that are rising. Just think what could be accomplished if significant resources were devoted to truly revitalizing milk.

As the dairy industry streamlines behind innovation and checkoff-funded partnerships to disrupt the dairy case — to be more like the plant-based non-dairy disruptors — there is still a majority of consumers choosing real milk, and more of them are choosing real whole milk as whole milk today is the top seller in the category, and whole flavored milk is growing by double-digits.

Can we disrupt all the disruption with a disruptive back-to-the-future original? I think so. But now is the time to hit it hard. A few years from now will be too late.

Dean Foods has the network and the facilities and the history a savvy consortium of buyers could tap into for going back to local or regional emphasis with brands. The DairyPure national branding experiment started out strong, but in the past few years has been squeezed-out by large retailers – and notably Walmart — pushing their own store brands with loss-leading strategies while hoisting the price of Dean DairyPure much higher.

And that’s part of the problem. Stores think it’s okay to loss-lead with milk, but they are not willing to eat that loss themselves. We need them at the regional dairy future table as well.

In the bankruptcy proceedings at hand, some of Dean Foods’ unsecured bondholders are protesting a rapid sale of assets to DFA in what they say equates to a “fire sale” that doesn’t maximize value. Did Dean receive a proposal from them too before filing bankruptcy? Sources indicate bondholders offered restructuring terms before the bankruptcy filing that would have changed the current picture for Dean Foods.

Will these bondholders that are opposing sale to DFA make an offer now? Can Dean Foods’ assets be sold piece by piece to be broken up more regionally? These questions don’t have clear answers at this time.

What is clear is that payments for milk by Dean to DFA are being delayed five business days as bondholders want to be sure they are truly ‘critical vendor’ payments and that there are no shenanigans between the would-be buyer and seller.

What is also clear is that Dean and DFA have a history, and that history includes the good, the bad, and yes, the ugly.

DFA was there every step of the way as mergers and acquisitions led Dean Foods on its path to become the nation’s largest milk bottler. DFA is Dean’s largest supplier of milk, and DFA leaders are on record stating that Dean Foods is the largest buyer of DFA milk.

If DFA purchases “substantially all” of Dean’s assets, we know more rapid consolidation of the fluid milk market will occur. DFA’s leaders — as well as the leaders of all the prominent organizations in the dairy industry, including the dairy checkoff — have been clear if we’re paying attention. The future they see is in moving away from investing in fresh fluid milk and moving toward ultrafiltration and aseptic packaging and blending and innovating for beverages that can be supplied to anywhere from anywhere without transporting milk’s water-volume by tanker.

Those are more of the ingredients for a monopolization of milk that may not even be considered by the Department of Justice. Without another offer or series of regional offers on the table, DFA would stand as the only option — other than complete failure of the firm under bankruptcy. This, alone, could put the sale to DFA on the fast track as sources talk about bankruptcy clauses that allow purchases to occur — without DOJ approval — when failure is the only other option.

So while consumers are consciously being pursued by the industry and dairy checkoff to move them away from their habit of reaching for that jug of milk and toward new beverages that contain milk — or are innovated new varieties of milk, or are blended and diluted with plant-based alternatives — what happens to the dairy producers in communities whose relevance is tied closely with retaining fresh fluid milk as a nurtured market and being a producer of a ‘local’ and fresh product? These producers are also forced to pay into the dairy checkoff that is developing these alternatives, not promoting or educating about fresh whole milk, and in effect funding their own demise.

Who will tend this store, nurture these customers, satisfy consumer desires to buy-local and ‘help farmers’ and their new-found eagerness to learn more about real fresh whole milk nutrition?

If states and regions don’t work to keep fresh milk facilities in their midst, the global message on ‘sustainability’, ‘carbon footprint’, ‘flexitarian diets,’ and ‘planetary boundaries’ will overtake the public consciousness, and the choices disrupting and diluting the dairy case will overtake fresh fluid milk.

In business today, that’s all we hear: Innovate and disrupt. Maybe it’s time to disrupt the disruptors, to put together a fresh fluid milk branding and packaging campaign that makes milk new again.

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DEAN BANKRUPTCY: Court allows critical vendor payments; DFA’s Smith says ‘We are logical owner’

The level of transparency in the Dean Foods Chapter 11 bankruptcy is unprecedented.  Included in the Chapter 11 proceedings are Dean’s 60 dairy plants and numerous name brands, including: national brands DairyPure and TruMoo; along with regionally branded milks, as well as Friendly’s Ice Cream and other cream products. This graphic in the Dean Foods’ declaration to the bankruptcy court shows the implications for consumers, farmers, businesses throughout the nation, reinforcing the importance of Dean Foods continuing operations during the Chapter 11 bankruptcy proceedings and court-supervised sale of assets.

By Sherry Bunting, Farmshine, Friday, Nov. 22, 2019

BROWNSTOWN, Pa. – When a dairy firm files bankruptcy, the first concern is whether farmers will be paid for milk already shipped. That first hurdle was passed as independent shippers to Dean Foods plants in at least three states report receiving payment in full for October milk, though the settlement checks due Nov. 15 were deposited two to three days late, in many cases.

In Pennsylvania, because of its unique Milk Marketing Board that implements and oversees the state’s Milk Marketing Law, PMMB indicates they are following up to be sure payments are made every two weeks instead of waiting for normal periodic auditing. Pennsylvania’s mandatory over-order premium on fluid milk produced, processed and sold in Pennsylvania is part of the minimum price bottlers must pay, and there have been no actions by the board to adjust this in any way.

Other states’ producers also report receiving payments in full.

In fact, Dean Foods’ spokesperson Anne Divjak reported to Farmshine last week that it is “business as usual” for Dean Foods to keep the milk flowing from farms to schools and supermarkets during the Chapter 11 bankruptcy reorganization and sale. The first regulated payments for milk after filing bankruptcy encountered just a small delay as banks needed to be aware of honoring the payments after the bankruptcy court decision last Wednesday afternoon allowed “critical vendor” to be paid.

Multiple sources indicate that Dean focused on getting payments to independents first, then small cooperatives, then DFA. There is no confirmation on whether DFA’s milk shipments were paid in full or what portion of the $172.9 million attributed to DFA as a creditor in the bankruptcy filing represent milk shipments.

Orders signed by Judge David Jones of the Southern District of Texas bankruptcy court where Dean’s petition was filed, are what allowed Dean Foods to pay “critical vendors” for pre-petition purchases and to continue its operations by accessing cash on hand as well as having access to up to $475 million of the new $850 million in debtor-in-possession financing to keep the ship sailing for nine months as reorganization and sale are sorted out.

Included in the Chapter 11 proceedings are Dean’s 60 dairy plants and numerous name brands, including: national brands DairyPure and TruMoo; along with regionally branded names for example Swiss Premium and Lehigh Valley in Pennsylvania; Garelick in New York and New England; Mayfield and Purity in the Southeast; as well as the Land O’Lakes milk brand in the Central Plains, where Dean licenses the Land O’Lakes logo and name and the cooperative supplies those plants. It also includes Friendly’s Ice Cream and other cream products produced by Dean Foods.

As the nation’s largest milk bottler, Dean Foods accounts for roughly one-third of the U.S. fluid milk market but saw volume losses from various fronts in the past two years and stock shares had fallen below $1.00 with bonds also decreasing in value.

Overall fluid milk consumption is down. Private label store brands are a larger share of the down-trending market compared with brands. Walmart’s new plant in Fort Wayne last year affected their contracts to bottle Great Value and also changed the geography and position of Dean brands in several important Southeast and Mideast markets. 

Dean also suffered other contract losses last year, and as Walmart bottled its own store label brand in several states and worked with Midwestern cooperatives to accomplish and supplement that start up, Dean saw its DairyPure and TruMoo brands replaced by Prairie Farms in many of those stores, and other Walmart stores as well.

Divjak did confirm that Dean’s majority interest in Good Karma, a non-dairy alternative beverage made from flaxseed, is separate from their dairy holdings in the bankruptcy proceedings. Dean purchased the Good Karma majority share a year ago for $15 million.

Interestingly, on Tuesday, November 12, the day that Dean Foods announced its bankruptcy petition, DFA was holding its Northeast Dairy Leadership meeting in Syracuse. Part of Dean’s announcement indicated that the company is in “advanced” talks with DFA about purchase of “substantially all assets.”

Chicago-based food science writer Donna Berry, with ties to DMI, was in Syracuse that day as a guest speaker on dairy protein and how it can be used in innovative foods and beverages to make plant-based options better. According to her Berry on Dairy blog story two days later, entitled “Dairy protein completes plant-based foods,” the mood in Syracuse was “upbeat.”

“Let’s face it, too often dairy marketers take the conservative road when it comes to promoting their products. Dairy Pure was the best Dean Foods could do for fluid milk, and it was not enough, as we see in its bankruptcy filing this week.

Berry went on in her blog post to quote DFA CEO Rick Smith before “a room packed with about 500 Northeast members of DFA and suppliers of services to DFA” at Tuesday’s Syracuse meeting.

The news of Dean Foods’ bankruptcy filing had just broken that morning, and Smith was already stating that, “Everybody’s been telling me for years that we are the logical owner of Dean’s. And I’ve already gotten phone calls about people who want to partner with us. We will be interested in some assets, undoubtedly. And not interested in some, undoubtedly. Some (assets) should be closed. Some will require partners.”

The week before, DFA chairman Randy Mooney’s comments at the NMPF / DMI meeting in New Orleans were loaded with concern about dairy farmers going out of business and loss of rural towns and infrastructure and that NMPF’s priorities were trade and immigration.

But something else Mooney said at that convention the week before Dean’s bankruptcy filing was foreshadowing. He talked about looking at a map and seeing “milk plants on top of milk plants” and how the industry needs to “collectively consolidate” toward plants “capable of making the new and innovative products consumers want.”

Dairy checkoff has made it clear that the emphasis of the future is on innovative new beverages and other products. While we are told that consumers are ditching the gallon jug (although it is still the largest sector of sales in 94% of households) and we are told consumers are looking for these new products; at the same time, we are also told that it is dairy checkoff’s innovation strategy to work with industry partners to “move consumers away from the habit of reaching for the jug and toward looking for these new and innovative products” that checkoff dollars are launching.

Meanwhile, Mooney’s comments about consolidating plants gives us a window into how DFA might treat those Dean assets if the “advanced talks” with Dean about purchasing them come to fruition. DFA will be a prime mover in the further consolidation of fluid milk assets markets if history is a guide.

Other industry analysts are also indicating that potential sale of “substantially all” Dean assets to DFA would likely consolidate these regional fluid milk bottling plants and create major shifts in how fluid milk is supplied to consumers in the future.

Dairy checkoff weighed in just hours after Dean’s bankruptcy announcement, Scott Wallin, vice president of industry media relations and issues management for Dairy Management Inc. (DMI), sent a media statement that, “Dairy Farmers of America (DFA) is in discussions to purchase the assets,” and went on to point out that, “In a decade shaped by a constantly changing marketplace, U.S. dairy has and will continue to successfully navigate the current economic environment… well positioned to expand its growth through innovation to meet the changing tastes and needs of today’s consumers.”

Others make the point that the Dean bankruptcy signals a milk information problem, not a milk demand problem. Noted agriculture radio personality Trent Loos stated in a broadcast drawing on his history with dairy farmers over the past 20 years, stating: “progressive producers were on the cutting edge of consumer education,” but that “their associations and most of the processors” have pushed in the opposite direction, insisting that consumers want low-fat and skim milk and skim water. He talked about how this is affecting the health of our children and teenagers not consuming enough milk, especially whole milk.

“Now that the producers are filing bankruptcy, the milk processors are filing bankruptcy too. Where does the milk industry go from here? The consumer’s not always right when they don’t have all of the information,” Loos said.

Meanwhile, in the “first-day” hearing on the Dean Foods Chapter 11 bankruptcy in Houston, Texas last Wednesday, at least one attorney — representing one-third of Dean’s bondholders — equated the filing and potential sale to DFA as a “fire-sale” of the company’s assets to DFA and they opposed this move.

Whether other serious buyers emerge – or strategies to regionalize sales of assets – remains to be seen.

For now, farms who ship milk to Dean Foods as independents or cooperatives are operating under levels of transparency and “business as usual” that were not seen in dairy bankruptcies of the past. Stay tuned.

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