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story.lead_photo.caption A 40% drop in milk consumption since the 1970s is one factor seen as leading to Dean Foods Co. filing for bankruptcy Tuesday.

Top U.S. milk processor Dean Foods Co. filed for Chapter 11 bankruptcy Tuesday and is in advanced talks with Dairy Farmers of America Inc. about a potential sale.

Dallas-based Dean listed assets and liabilities of as much as $10 billion each in court papers filed in Houston and said in a statement it has commitments for $850 million in bankruptcy financing from existing lenders led by Rabobank. The filing allows Dean to keep operating while it works on a plan to pay creditors and turn the business around.

Losses have piled up after Dean's biggest customer, Walmart Inc., built its own milk plant in Indiana. Dean says it's the largest U.S. processor of fresh fluid milk and other dairy products, but the company has been squeezed by fierce competition and the rising price of milk, which has eroded profit margins.

Demand for cow milk has been weak, too, with nondairy milks, soft drinks, juice and even bottled water cutting into its popularity. On top of that, retailers have been selling their own house brands of milk at a loss to increase store traffic, Hoai Ngo of Bloomberg Intelligence wrote in a note.

Oat milk, for example, saw U.S. sales rise 636% to more than $52 million over the past year, according to Nielsen data. Sales of cow's milk dropped 2.4% in that period.

Since 1975, the amount of liquid milk consumed per capita in the U.S. has tumbled more than 40%. Americans drank around 24 gallons a year in 1996, according to government data. That dropped to 17 gallons in 2018.

Not all dairy products have been affected. U.S. butter and cheese consumption is up since 1996, for example.

Dean employs 16,000 people and operates 60 processing facilities across the country. On any given day, it is running 8,000 refrigerated delivery trucks on U.S. roads.

It supplies milk for its own brands, like Dairy Pure, Meadow Gold and TruMoo, as well as store brands.

A transaction between Dean and Dairy Farmers of America -- a marketing cooperative owned by thousands of farmers -- is still under review, and no agreement for the purchase of Dean's assets has been reached, Dairy Farmers of America Executive Vice President Monica Massey said in an emailed statement. Other bidders may emerge during the bankruptcy process, Massey said, adding that the cooperative's offer would be contingent upon various approvals, including a review of Dean Foods' assets and clearance from U.S. antitrust regulators.

The cooperative monitored Dean's financial performance "closely since the business began showing signs of distress" and began "preparing for various scenarios, including a bankruptcy filing, in order to minimize the impact," Massey said.

According to Rabobank, Dairy Farmers of America is the sixth-biggest dairy company in the world by sales, and Dean Foods is No. 11.

The Central States Southeast & Southwest Areas Pension Plan is listed as the company's largest unsecured creditor, with a $722.4 million claim alongside Dean's $700 million of unsecured notes that mature in 2023.

Dean's bankruptcy was the "clearest option" for addressing the pension and debt load, Wells Fargo equity analyst John Baumgartner said in a note. Challenges in the milk category on top of the unfunded pension liabilities were "too much to overcome," he said.

Dean has been hemorrhaging executives as well as cash, with Chief Financial Officer Jody Macedonio and general counsel Russell Coleman stepping down in September. Vice President of Commercial Finance Scott Mills joined another company last week.

Chief Executive Officer Eric Beringause, who joined the company about three months ago, said the current path, led by a new senior management team, would lead to a turnaround.

Dean expects to report a cash loss of $286 million for a 10-month period through August of 2020, according to recent financial projections. The budget also predicts around $15 million of cash on the balance sheet by the end of the period.

The bankruptcy filing comes at a difficult time for dairy farmers, who were already struggling with low prices because of oversupply.

Linda Ceylor and her husband, Gerald, operate an organic farm near Catawba, Wis., where they milk fewer than 50 cows and raise heifers.

Ceylor said Dean Foods' woes mirror what smaller producers are facing. She said the most hurtful part is watching young people go out of business, including three neighbors in their 30s.

"All they ever wanted to do is milk cows, and all three of them said they can't do it anymore," Ceylor said. "That's like watching your grandchildren go through a massive problem you can't do anything about. There's really no other choice for them to make."

Darin Von Ruden, president of the Wisconsin Farmers Union, said he is concerned about Dean Foods selling itself to Dairy Farmers of America.

"That's two of the five biggest companies in the country, and when you start looking at that kind of consolidation, is that good for producers? The answer is probably no," said Von Ruden, who is selling his dairy operation to his son.

Dean is already a product of consolidation. It was bought in 2001 by Suiza Foods Corp., a Dallas-based company that had assumed the name of its first major acquisition, Puerto Rico's Suiza Dairy. The new, larger company then assumed the Dean name and bought several other milk producers.

Information for this article was contributed by Lydia Mulvany, Katherine Doherty, Sebastian Boyd, Rudy Ruitenberg and Jeremy Hill of Bloomberg News; and by Michelle Chapman, Dee-Ann Durbin and Dave Kolpack of The Associated Press.

Business on 11/13/2019

Print Headline: Dean Foods goes bankrupt as dairy negotiates takeover


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