Dean Foods files for bankruptcy in Texas

By Beth Newhart contact

- Last updated on GMT

Dean Foods is ‘engaged in advanced discussions’ with the Dairy Farmers of America regarding a potential sale of all company assets.
Dean Foods is ‘engaged in advanced discussions’ with the Dairy Farmers of America regarding a potential sale of all company assets.

Related tags: Dean foods, financial report, Bankruptcy, Mergers and acquisitions, nmpf, Dfa

One of the most well-known dairy companies in the US is prepared to sell its business after years of disappointing numbers. The Dairy Farmers of America (DFA) may be a potential buyer of the Dean Foods assets.

Dean Foods announced Tuesday that it and all of its subsidiaries have voluntarily filed for bankruptcy, and are working toward a sale of the company. It produces brands like Dean, Dairy Pure, Country Fresh, Land O’Lakes and TruMoo.

The company pointed to a challenging operating environment and continuing declines in consumer milk consumption as reason for the news, despite its “best efforts to make ​[the] business more agile and cost-efficient.”

With the help of $850m from existing lenders like Rabobank, Dean Foods plans to continue normal operations throughout the process. This will include payment of employee wages and benefits without interruption and payment to suppliers and vendors in full.

Rabobank said in a statement to DairyReporter that it “is proud of its role in organizing a debt financing package for Dean Foods that provides the company with enough liquidity to continue operations. With this funding, we hoped to avoid major industry disruption for consumers and the hundreds of US dairy farmers who supply milk to Dean Foods-owned processing facilities.”

Eric Beringause, president and CEO of Dean Foods, said, "We have a strong operational footprint and distribution network, a robust portfolio of leading national brands and extensive private label capabilities, all supported by approximately 15,000 dedicated employees around the country.

“Importantly, we are continuing to provide customers with an uninterrupted supply of high-quality dairy products, as well as supporting our dairy suppliers and other partners."

A disappointing 2018 didn't improve

In November 2018, Dean Foods announced that it had shuttered or consolidated​ seven of its plants in just six weeks, which was unprecedented closure activity for the company. At the time, it pointed to a ‘company-wide restructuring program’ to reset its cost structure.

A few months later in its full-year results for 2018, Dean Foods said its disappointing recent performance had it considering a joint venture​, business combination or a sale. It ended 2018 with a net income loss of $326.9m compared to the $61.6m profit it made in 2017.

The CEO of Dean Foods at the time, Ralph Scozzafava, said, “We are taking vital, transformative actions to maximize the benefits of our scale and position the company for the long term, including implementing an enterprise-wide cost productivity plan and investing in core capabilities, technology, infrastructure, people and systems.”​

Investment management firm Bernstein then announced​ in March it was “discontinuing coverage of Dean Foods (DF) due to the stock's diminished market cap and stock price.”

Analysts from Bernstein projected that Dean Foods could sell its ice cream business for up to $900m, in the event of bankruptcy. They pointed to Dean Foods’ ‘deteriorating business fundamentals’ and called it too high-risk to keep on.

Beringause was appointed the new CEO in July after the Dean Foods board conducted a review of strategic alternatives. They determined he was the best fit to create value for the company and build on its performance momentum.

US dairy reacts

With the news this week, Dean Foods canceled its quarterly earnings call for Q3, and Beringause said, "Since joining the company just over three months ago, I've taken a hard look at our challenges, as well as our opportunities, and truly believe we are taking the best path forward.

“In recent months, we have put in place a new senior management team that not only has considerable experience in the dairy and consumer product industries, but also in executing major turnarounds. I am confident we have the right people in place to lead us through this process.”

The company said it is ‘engaged in advanced discussions’ with DFA regarding a potential sale of all Dean Foods assets.

DFA confirmed the two are communicating regarding an acquisition, and said, “As Dean Foods is DFA’s largest customer, our focus is ensuring we have secure markets for our members’ milk. 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.”

The National Milk Producers Federation said in a statement to DairyReporter, “A number of NMPF’s member cooperatives provide milk to Dean Foods and could be impacted by today’s bankruptcy filing. We are gathering information to better assess the situation and will work closely with our members to provide whatever support we are able to through this process.”

Dairy Management Inc. said, "In a decade shaped by a constantly changing marketplace, US dairy has and will continue to successfully navigate the current economic environment. Dairy is well positioned to expand its growth through innovation designed to meet the changing tastes and needs of today’s consumers."

Michael Dykes, president and CEO of the International Dairy Foods Association (IDFA), said “In light of today’s news about Dean Foods, IDFA is working across our broad membership to ensure the industry continues to meet growing demand for dairy products. The fact remains that overall consumption of dairy products is at historic levels and demand for dairy in the United States and around the world increases each year. While we gather more information about how today’s news will impact our industry, IDFA is working to ensure a safe, reliable supply of milk continues to move from farmers to consumers."

Dean Foods also created a resource site​ for the restructuring process, designed to answer questions from suppliers, vendors and consumers. 

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