The U.S. Department of Justice has told an Illinois federal judge to disregard the lone commenter weighing in on a deal to allow cooperative Dairy Farmers of America to move ahead with its $433 million purchase of assets from bankrupt milk producer Dean Foods, saying his remarks don't change the analysis of the transaction. 
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The DOJ’s filing Monday is part of the Tunney Act process by which it must submit merger clearance deals for public scrutiny and court approval regarding a settlement’s public interest implications.

In this case, Judge Gary S Feinerman is weighing the implications of allowing DFA to purchase 44 Dean Food fluid and frozen milk facilities across the U.S. on the condition that DFA sell plants in Illinois, Wisconsin and Massachusetts.

The DOJ imposed the terms to prevent DFA from picking up 70% of the fluid milk market in northeastern Illinois and Wisconsin and approximately 51% in New England.

The only response to the request for public comment, the DOJ said, came from Pennsylvania farmer Martin T. Petroski.

In a hand-written note, Petroski argued the Dean Foods deal shouldn’t be allowed because “DFA is coming into control of the milk market.” Farmers have gotten nothing in return but more costs, said Petroski, who called for DFA — whom he deemed the “milk mob” — to be broken up, arguing that in some places the company has become “the only market.”

Petroski may have been the only party to file a Tunney Act comment, but he isn’t the only one critical of the deal.

Food Lion and regional co-op Maryland and Virginia Milk Producers Cooperative Association Inc. are currently challenging a piece of the transaction in North Carolina federal court — specifically, DFA’s pickup of three processing facilitates in North Carolina and South Carolina, which they say reduces competition both for the supply of raw milk and the processing of milk.

DFA contends MDVA is suing simply because it’s “been unable to compete in the marketplace,” while Food Lion just wants to “extract the lowest possible prices to enhance its profit margins.”

According to the suit, DFA’s campaign to dominate the milk industry actually began in 2001 with the merger of Dean and Suiza Foods, when the co-op cut a “corrupt bargain” that helped get the deal past scrutiny from the DOJ.

The bargain allegedly made DFA the exclusive supplier of raw milk to the merged company in exchange for agreeing not to compete with processing plants that it was purchasing as part of a DOJ settlement clearing the merger.

The exclusive agreement was set to expire in 2021, but Dean’s filing for bankruptcy in November threatened to accelerate the timing, according to the complaint. DFA “could not let that happen” and instead engineered a way of making the arrangement permanent by purchasing 44 processing plants from the bankruptcy estate, according to the complaint.

The suit also contends that in 2021, when DFA’s supply contract was set to expire, MDVA would have been able to compete for new contracts with the plants, competition that won’t happen because of the deal.

In the instant court review of the merger clearance settlement however, the DOJ argued Monday that it’s not enough for Petroski to generally criticize DFA as too big and engaging in anticompetitive conduct.

“The comment, however, does not appear to be in any way critical of the merger. The comment, for example, does not refer to any of the allegations in the complaint, nor to the impact of the proposed final judgment,” the DOJ said.

According to the department, which will soon seek final approval, the settlement sufficiently addresses the competitive harms of “substantially lessened competition for the processing and sale of fluid milk in two geographic markets — northeastern Illinois and Wisconsin and New England.”

The department also read Petroski’s “only market” comment to refer to DFA’s role buying raw milk from farmers and coordinating sales.

“To the extent this comment advances a claim about DFA’s purchase of raw milk from farmers, the comment is discussing the sale of raw milk from farmers or cooperatives to processors, not the sale of processed fluid milk from dairy processors to retailers and schools that the complaint addresses,” the DOJ said.

“Because the United States did not make any claims relating to any raw milk markets in its complaint, this part of the comment is outside the scope of what this court is asked to review under the Tunney Act,” continued the department, which argues courts can review only the competitive harms raised by the DOJ and cannot look at a transaction more broadly.

DFA did not immediately respond Tuesday to a request for comment.

The government is represented by Karl D. Knutsen, Justin Heipp, Nathaniel J. Harris and Christopher A. Wetzel of the U.S. Department of Justice.

The case is United States of America et al v. Dairy Farmers of America Inc. et al., case number 1:20-cv-02658, in the U.S. District Court for the Northern District of Illinois.

–Additional reporting by Matthew Perlman, Jeff Montgomery, Rick Archer and McCord Pagan. Editing by Philip Shea.

Fonterra is in the middle of a big restructure of its capital. It is still the case given its dominance over us that where Milk Supertanker Fonterra goes, we go.

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