America's biggest farmer-owned dairy cooperative has agreed to buy the bankrupt parent company of Mayfield Dairy for $425 million, but the giant dairy business merger still must be approved by anti-trust regulators in Washington, D.C.
Dairy Farmers of America (DFA) is proposing to acquire 44 of the facilities and assets of Dean Food Co.'s fluid and frozen dairy operations, including the 330-employee operations of Mayfield Dairy in Athens, Tennessee.
While the merger would bring Dean Foods out of bankruptcy and provide more economies of scale and purchasing power for the combined dairy business, dairy farmers already reeling from low milk prices and higher operating expenses could be hurt by the proposed merger.
A typical American today drinks about 40% less milk than in the 1970s. The nationwide decline in milk consumption and the rippling effects of the trade war with China have pushed thousands of dairy farms out of business.
Dairy farmers have argued that a merger of DFA and Dean Foods would reduce competition and suppress the price of raw milk. But DFA says its deal will help farmers by guaranteeing that there will be buyers for their milk at a time when milk consumption is declining nationwide.
So far, much of the antitrust scrutiny has focused on the co-op's evolving role in the American milk business. Two decades ago, Dairy Farmers of America was founded to help small farmers market their raw milk to dairy processing companies like Dean Foods, which prepare milk for distribution to retailers.
But over the years, the co-op, which now has more than 14,000 members, also has invested heavily in processing, meaning it buys some of the raw milk that its own marketing branch sells. Those investments have created a conflict of interest, some dairy farmers argue, because processors benefit from lower milk prices, while farmers benefit from higher ones.
Dairy Farmers of America's plan to acquire a large portion of Dean Foods' assets would significantly expand its processing operations, heightening the conflict of interest, critics of the merger say.
The chief executive of Dean Foods, Eric Beringause, said in a statement that Dairy Farmers of America would "serve our customers with the same commitment to quality and service they have come to expect."
The two dairy businesses have been working to reach an agreement since DFA became aware of Dean's plan to initiate voluntary Chapter 11 reorganization proceedings back in November.
"We have had a relationship with DFA over the past 20 years, and we are confident in their ability to succeed in the current market and serve our customers with the same commitment to quality and service they have come to expect," Dean President Eric Beringause said in a statement.
The transaction remains subject to various approvals, including approval from the bankruptcy court overseeing Dean's Chapter 11 reorganization and the U.S. Department of Justice.
"As Dean is the largest dairy processor in the country and a significant customer of DFA, it is important to ensure continued secure markets for our members' milk and minimal disruption to the U.S. dairy industry," DFA president and CEO Rick Smith said. "As a family farmer-owned and governed cooperative, no one has a greater interest in preserving and expanding milk markets than DFA."
A hearing is set by the bankruptcy court handling the reorganization of Dean Foods on March 12. DFA will serve as a stalking horse bidder in a court-supervised sales process whereby the agreement with DFA will set the floor for the sale to the highest bidder for the bankrupt Dean Foods, now scheduled for March 31.
Further, Dean said it is also in active discussions with parties interested in the plants and assets that are not included in the stalking horse assets.
In the meantime, dairy operations at Dean Foods and its subsidiaries, including Mayfield Dairy, continue.