DALLAS — A potential buyer for Dean Foods Co. and its subsidiaries was being sought after the Dallas-based company filed for Chapter 11 bankruptcy protection Nov. 12 in the Southern District of Texas. Dean Foods and Dairy Farmers of America have been discussing a potential transaction, but no deal had been completed as of Nov. 21.
“The actions we are announcing today are designed to enable us to continue serving our customers and operating as normal as we work toward the sale of our business,” said Eric Beringause, who recently joined Dean Foods as president and chief executive officer. “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.
“Despite our best efforts to make our business more agile and cost-efficient, we continue to be impacted by a challenging operating environment marked by continuing declines in consumer milk consumption. 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.”
Dean Foods has received a commitment of about $850 million in debtor-in-possession financing from certain existing lenders, including Rabobank. The company expects to use the D.I.P. financing, together with cash on hand and operating cash flows, to support its continued operation throughout the process, including payment of employee wages and benefits without interruption and payment to suppliers and vendors in full under normal terms for goods and services provided on or after the filing date.
Dean Foods intends to file bidding procedures with the court to conduct a sale in accordance with Section 363 of the U.S. Bankruptcy Code and work with its creditors to explore a potential stand-alone plan of reorganization. Additional information is available at www.deanfoodsrestructuring.com.
Dean Foods canceled its Nov. 12 earnings call to discuss third-quarter results. The company after the second quarter ended June 30 had a total net debt of about $968 million.
Dean Foods’ stock price closed at 80c per share on Nov. 11 on the New York Stock Exchange, which compared to a 52-week high of $6.27.
“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,” Mr. Beringause said. “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.”
Mr. Beringause was appointed president and c.e.o. on July 29. Executives on Sept. 6 decided not to sell the company. Now, Dairy Farmers of America has emerged as a potential buyer.
Based in Kansas City, Kas., Dairy Farmers of America is a farmer-owned global food company with more than 14,000 members. Its retail brands include Borden cheese and Keller’s creamery. Dairy Farmers of America also manufactures and sells dairy ingredients, including nonfat dry milk powder, skim milk powder and sweetened condensed milk.
The origin of Dean Foods dates to 1925 when Samuel E. Dean Sr. purchased the Pecatonica Marketing Co., an evaporated milk processing facility in Illinois. Today, Dean Foods’ portfolio includes brands such as DairyPure white milk, TruMoo flavored milk, and regional brands Dean’s and Friendly’s.
Dean Foods sustained a loss of $326.9 million in the 2018 fiscal year, one in which the management and staff announced a plan to close 7 processing plants and integrate that production volume into 21 manufacturing sites. The project was designed to reduce costs and optimize the company’s manufacturing capacity.
In February 2019 the board of directors began a review of strategic alternatives, including a possible sale of the company. Through the first six months of 2019, Dean Foods sustained a loss of $126 million. Mr. Beringause then replaced Ralph Scozzafava as c.e.o. in the third quarter. The net loss in the third quarter ended Sept. 30 was $79.4 million, according to an 8-K form filed Nov. 12 with the U.S. Securities and Exchange Commission. The S.E.C. filing listed net debt of $1,022 million on Nov. 8.
The S.E.C. filing listed several headwinds facing the dairy industry. Dean Foods cited data from Information Resources, Inc., a Chicago-based market research firm, showing the U.S. fluid milk category has declined about 4% year over year through Sept. 29. Retailers are using low priced private label milk to drive sales, according to Dean Foods, while higher commodity costs are pressuring margins and a nationwide driver shortage is leading to higher freight rates.