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Update: Order withdraws DFA as stalking horse bidder, advances Dean toward bankruptcy sale

Progressive Dairy Editor Dave Natzke Published on 20 March 2020

Editor's note: This article was updated on March 21 to include additional comments from Dairy Farmers of America.

An updated court docket outlines the bidding and sales procedures and timeline as Dean Foods continues its journey through bankruptcy. The order (docket number 1178) was signed by Judge David Jones at the conclusion of hearing, held March 19, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston, Texas.

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Attorneys representing all segments of the complex proceedings reached consensus on the order prior to the March 19 hearing. The hearing was impacted by the coronavirus (COVID-19) outbreak, with several attorneys appearing via telephone.

As reported previously by Progressive Dairy, the new order withdraws Dairy Farmers of America (DFA) as the stalking horse bidder for Dean assets and accelerates the bidding and sales process timeline. (Read: Proposed order withdraws DFA as Dean ’stalking horse’ bidder.)

In February, DFA had reached an agreement with Dean Foods to acquire a substantial portion of Deans’ assets and business, including 44 of Dean’s 57 facilities. Along with identifying the locations of those facilities under an asset purchase agreement (APA), initial bid procedures and timelines were established. (Read:DFA, Dean Foods reach initial $425 million ‘stalking horse’ agreement.)

That changed in March. “Dean Foods requested to go forward with different bid procedures, and DFA has agreed,” said Monica Massey, DFA’s executive vice president and chief of staff.

“DFA is re-evaluating our options, given current circumstances, to bid on Dean’s assets by the March 30 deadline,” Massey said. “We believe, any bid we submit will benefit all dairy farmers, as no one has a greater interest in preserving milk markets than we do.

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“Ultimately, whether we end up with facilities or they are purchased by other parties, DFA remains committed to preserving milk markets for our members and limiting disruption to the industry,” Massey said.

Based on conversations with the Department of Justice (DOJ), DFA does not anticipate any antitrust contingencies tied to efforts to acquire Dean facilities or business, Mitchell Seider, with the law firm of Latham & Watkins LLP, told the court on March 19.

One potential hurdle was ongoing discussions between Dean and employee unions regarding collective bargaining agreements, Seider noted.

In addition to withdrawing DFA as the stalking horse bidder, the proposal seeks to add additional transparency to the bidding process, laying out requirements related to making bid details public. Under the new proposed timeline, the deadline to submit bids is March 30 (moved up from April 13), with any objections filed by April 1 (up from April 22). A sale hearing would then be held April 3 (instead of April 27).

The proposal does grant others the right to request an extension on the proposed timeline. However, attorneys representing DFA and Dean expressed hope the sales process can now move forward as quickly as possible. Seider urged Judge Jones to be skeptical of any requests to extend the sales process beyond April 3.

Attorneys for Dean Foods indicated any extension to the timeline faces financial constraints. Early March financial projections indicated Dean, which is operating under debtor-in-possession (DIP) financing, faced liquidity challenges that were likely to turn negative by June. The coronavirus and its impact on school milk contracts played a role in those projections. (Read: Dean Foods receives court approval for $850 million in financing.)

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Attorneys representing potential competitors for Dean assets expressed some concerns over difficulties in conducting site visits as part of the bidding process. In some cases, those site visits are also being hampered by travel restrictions and staffing issues related to COVID-19.  end mark

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