Bondholders propose merger for Borden Dairy and Dean Foods

29 Apr 2020 --- Following a bid to sell its assets to Dairy Farmers of America (DFA) earlier this month, Dean Foods is now floating the idea of an alternative merger of its business with Borden Dairy – another prominent milk player that also filed for bankruptcy in January. In filed court papers, bondholders at the two companies presented the solution to the US Bankruptcy Court in Houston. FoodIngredientsFirst has reached out to the respective parties for comment on these latest developments with Dean Foods confirming the closure of the DFA sale in the next few days. 

“We are planning to close on the majority of our sales transactions, including the sale to DFA, by the end of the week. Dean Foods believes that the pending agreement with DFA is procompetitive and beneficial to both farmers and consumers,” Anne Divjak, Vice President of Government Relations & External Communications at Dean Foods tells FoodIngredientsFirst.

The US bankruptcy court approved the sale of most of Dean Foods’ assets to DFA earlier this month, valued at US$433 million. This deal still requires approval from the US Justice Department. A court filing now reads, “In the event the Asset Sales are not consummated, the Borden-Dean Merger presents a viable ‘Plan B’ transaction that would maximize the value of both estates.”

The sale of Dean Foods’ assets to DFA “would effectively consolidate DFA’s grip on the national milk market.” Borden Dairy filed for bankruptcy ahead of Dean Foods in January. The Dallas-based company has since initiated a reorganization through a court-supervised process, with assets and liabilities listed between US$100 to 500 million in its filing. 

DFA was initially named the stalking horse bidder to acquire a substantial portion of Dean’s assets and business for US$425 million in February, but lost this position after facing antitrust concerns from farmers and other stakeholders. 

An ad hoc committee comprising representatives from several dairy co-ops filed a limited objection on March 9 objecting to DFA being named as the stalking horse bidder and the Dean Foods/DFA asset purchase agreement, among other decisions.

As argued in this court document, the sale of Dean Foods’ assets to DFA “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.”

“By purchasing the stalking horse assets, DFA can essentially preclude its competitors from selling their milk to Dean Foods – one of the largest purchasers in the nation. In turn, a dairy farmer or cooperative’s ability to meet the minimum federal order requirements and receive the benefits of the pooling programs could be severely impacted,” the objection contends.

At a macro level, the dairy sector as of late has battled the rising tide of competition on the market, economic recessions and more recently – pandemic-related headwinds. In an analysis by DFA, stateside milk revenues have plummeted by US$1.1 billion in 2018 – an eight percent drop from 2017’s figures. In USDA reports, milk sales waned by 22 percent between 2000 and 2016. These figures are prominently down from the 1970s and 1980s.

Meanwhile, “The Plant-Based Revolution,” pegged by Innova Market Insights as set to flourish as a result of consumer interest in health, sustainability and ethics, is poised to further disrupt the dairy space. As the use of the term “plant-based” moves more into the mainstream, the industry and start-up companies, in particular, are positioned to shake up the dairy market with alternatives.

By Benjamin Ferrer