When Dean Foods announced it was filling for Chapter 11 bankruptcy last week, the news was couched with indications that Dairy Farmers of America (DFA) was interested in buying some of the company’s assets.
A quick glance at the court documents reveals that Dean Foods currently owes DFA $172,922,316. It’s no wonder the cooperative is looking to acquire some assets from the bankruptcy proceedings.
For the year ended Dec. 31, 2018, Dean Foods recorded a loss of $260,117,000. In fiscal year 2017, the company earned $52,318,000. Total sales for both years were nearly the same.
That’s why it was no surprise when the company initiated a “strategic review” to explore a merger, joint venture, sale or disposal of assets. Still, during a May 8 earnings call, former Dean Foods CEO Rick Scozzafava indicated the company would not explore any of those options.
“It’s very possible that we won’t do anything, and we’ll continue to execute the plan that we have, which we’re very happy with, and we’ll continue to make progress on it,” he said. “So look, we’ve been in conversations with some folks, and we’ll leave it at that.”
Then, in July the company announced the abrupt departure of Scozzafava and the addition of Eric Beringause, Dean Foods current CEO. Bankruptcy records include a severance debt owed to Scozzafava for more than $5 million indicating he was likely fired.
Was Scozzafava alluding to a potential deal with DFA in his May 8 remarks? It’s hard to know, especially since Dean Foods has declined several requests for an interview. And DFA’s statement on the situation is hardly telling.
“As Dean Foods is DFA’s largest customer, our focus is ensuring we have secure markets for our members’ milk,” their statement said after declining a request for an in-depth interview. “Thanks to the strategic planning and management by our farmer Board of Directors and management team, the Cooperative is in a financial position to withstand a situation like this. We remain committed to delivering value to our members and dedicated to preserving the family farm for generations to come.”
Still, it’s safe to assume DFA is interested in both protecting the processing capacity required to handle all of their members milk, and in recouping some of the money owed to them.
How exactly the entirety of the situation will play out is yet to be determined.
Given Dean Foods also owes millions of dollars to Land O’Lakes, Southeast Milk and Select Milk Producers, maybe some of those coops will purchase Dean assets? Maybe Saputo or Nestle or another dairy company that Dean Foods owes millions to will be interested in some of the assets?
Source: Anna-Lisa Laca, Dairy Herd Management
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