Borden Dairy and Dean Foods are thinking about merging the two bankrupt companies in the event Dean Foods’ assets aren’t sold to Dairy Farmers of America.
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Courtesy of Borden Dairy / Dean Foods

Dive Brief:

Bondholders at Borden Dairy and Dean Foods proposed the idea of merging the two bankrupt dairy companies in court papers filed in the U.S. Bankruptcy Court in Houston​ last week.
The bankruptcy court already approved most of Dean Foods’ assets to be sold to Dairy Farmers of America for $433 million. “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 court filing said.
The deal between Dean and DFA still needs approval from the U.S. Justice Department. The sale has faced antitrust concerns and objections from farmers and stakeholders for months.

Dive Insight:

After facing challenges in the milk industry in recent years from competition, slumping sales and mounting debt, both Borden and Dean filed for bankruptcy just two months apart. Now, the option of merging the two bankrupt dairy companies is being floated as an alternative option to the sale to DFA.

Early this month, the court approved the sale of most of Dean’s assets to Dairy Farmers of America. Before the sale was approved by the court, Dean dropped the dairy co-op from serving as the lead bidder after facing resistance from creditors and the judge. ​

Although it is likely that the deal will be approved, concerns around competition have plagued the potential sale since talks began when Dean filed for bankruptcy in November of last year. Dean is the largest milk processor in the U.S. with 57 manufacturing facilities and a portfolio of brands, including TruMoo and DairyPure. The milk giant is the DFA’s biggest customer.​​

Farmers have filed class action lawsuits against Dean, DFA and others for breaking antitrust laws in previous years. Although the companies didn’t admit wrongdoing, Dean and DFA have settled for millions of dollars.​

Some parties recently told Food Dive they are hoping the DOJ will stop the deal, claiming the sale would negatively impact prices and competition. Last week, DOJ’s antitrust officials were reportedly coming close to a settlement with DFA that would allow it to buy the assets from Dean, according to The Wall Street Journal.

In February, Borden told Dean it didn’t plan to pursue a transaction, Bloomberg reported. At the time, Borden reportedly had a 30-minute discussion with Dean after the Dallas company made repeated requests to meet.

But it seems some Dean Foods stakeholders haven’t given up the prospects of a merger with Borden, which filed for bankruptcy in January. Borden’s largest secured creditor, KKR & Co, supports a merger, as well as Dean bondholders Knighthead Capital Management and Kingsferry Capital.

If this alternative were to become a reality, Dean would be a wholly-owned subsidiary of Borden. The bondholders said in the court filing they would finance the merger with more than $1 billion in debt and equity financing.

More than 100 objections were filed between April 1 and April 3 in response to the announcement of DFA as a winner of the majority of Dean’s assets, Hoard’s Dairyman reported. Last Monday, grocer Food Lion and Maryland & Virginia Milk Producers Cooperative Association filed court papers seeking an injunction preventing DFA from closing the sale on Dean’s assets. Dean and DFA agreed not to close their deal before the judge overseeing Dean’s bankruptcy can weigh in on Tuesday.

Although a merger with Borden could avoid antitrust concerns surrounding the DFA deal, the issues in the milk industry will likely remain. And now the dairy industry is facing an even deeper crisis with the pandemic as the loss of foodservice has led to dumping milk and bleeding profits. With the industry facing one hurdle after another, the bankruptcies of Dean and Borden are unlikely to be the last for a milk space that has seen its fair share of challenges in recent years.

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