DOJ Requires Antitrust Divestitures in Connection with Sale of Dean Foods’ Milk Processing Plants Out of Bankruptcy
On May 1, 2020, in connection with the bankruptcy sale of Dean Foods Company (“Dean Foods”), the Department of Justice Antitrust Division required divestiture of certain Dean Foods assets by Dairy Farmers of America Inc. (“DFA”). DFA and Prairie Farms Dairy Inc. (“Prairie Farms”) were acquiring fluid milk processing plants from Dean Foods. This announcement comes as the COVID-19 pandemic threatens the supply chain in the struggling industry, with the two largest fluid milk processors in the U.S., Dean Foods and Borden Dairy Company, in bankruptcy and Dean Foods facing imminent liquidation.
In November 2019, Dean Foods filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas and stated it was engaged in “advanced discussions” with DFA about “substantially” selling its assets. At the time, Dean Foods was the largest milk processor in the country, with 57 manufacturing facilities and a portfolio of brands including TruMoo and DairyPure. The DOJ Antitrust Division began an investigation into the potential deal between DFA and Dean Foods, citing concerns on the “potential loss of competition for selling raw milk.” In February 2020, DFA and Dean Foods announced that the companies had entered into an asset purchase agreement; that acquisition was abandoned prior to the court-supervised bankruptcy sale.
In the ensuing bankruptcy sale in March 2020, DFA won the bid for a substantial portion of Dean Foods’ assets for $433 million, including 44 of the company’s fluid and frozen milk processing plants and associated equipment and assets related to fluid milk production. Additionally, Dean Foods designated Prairie Farms as the winner of the assets, rights, interests, and properties relating to eight fluid milk processing plants, two distribution branches and other assets in the South and Midwest for $75 million. The sales were approved from the bankruptcy perspective on April 3, 2020 by U.S. Bankruptcy Judge David Jones.
On May 1, 2020, the DOJ Antitrust Division and state attorneys general of Massachusetts and Wisconsin jointly filed a merger challenge in U.S. District Court for the Northern District of Illinois against DFA’s proposed acquisition. The Division concurrently filed a proposed settlement requiring divestiture of three plants in Illinois, Wisconsin, and Massachusetts to an acquirer or acquirers approved by the government. The proposed settlement additionally requires DFA to surrender the intellectual property associated with the Wisconsin plant, including exclusive rights to brand names.
The DOJ also announced the conclusion of its investigation of the Prairie Farms’ acquisition, stating that the plants at issue would likely be shut down if not purchased by Prairie Farms due to Dean Foods’ distressed financial condition and the lack of alternate purchasers.
Regarding the proposed settlement with DFA, Assistant Attorney General Makan Delrahim stated, “This is a tumultuous time for the dairy industry, with the two largest fluid milk processors, Dean and Borden Dairy Company, in bankruptcy, and a pandemic causing demand for milk by schools and restaurants to collapse. In the face of these challenges and Dean’s worsening financial condition, the department conducted a fast but comprehensive investigation, and our actions today preserve competition for fluid milk processing in northeastern Illinois, Wisconsin, and in New England.”
AAG Delrahim also noted that “the closing of the department’s investigation into Prairie Farms’ acquisition will preserve necessary outlets for dairy farmers and keep milk on consumers’ refrigerator shelves by keeping the plants in operation.” The Division’s reference to the lack of alternative buyers indicates that while applying a failing firm analysis to what otherwise might have been an anticompetitive acquisition, the Division undertook the additional analysis as to whether other buyers with fewer anticompetitive implications were viable.
The Antitrust Division’s actions serve as a reminder that antitrust laws apply in the bankruptcy context. Both acquisitions were subject to investigation by the Antitrust Division following approval by the bankruptcy court, and DFA was still required to divest assets from their approved purchase for antitrust reasons to complete its acquisition. In addition, it does not look like the existence of the COVID-19 pandemic and its particular effects on the state of the milk industry affected materially the Division’s approach or analysis. While only one data point, it does not suggest that the antitrust enforcers are going to assess antitrust concerns with a lighter touch in light of the pandemic.