Food & Agriculture Quarterly June 2020 - Page 16

creditors and other potential buyers of Dean’s assets. To overcome those objections and assuage concerns, a shortened auction period was established, with the deadline to submit bids for Dean set for March 30. Dean announced DFA as the winning bidder the next day, with DFA agreeing to pay $433 million – $8 million more than its February offer – to acquire the assets, rights, interests, and properties relating to 44 of the Company’s fluid and frozen facilities. DFA’s winning bid remained subject to final approval by the Bankruptcy Court. Four days later, following an April 4th hearing and citing the need for the rapid transition of Dean assets to DFA to protect the future of its 15,000 employees in the weakening U.S. economy, the Court approved Dean’s sale to DFA. While the Bankruptcy Court’s Order closed its review of Dean’s sale to DFA, the transaction remained subject to antitrust scrutiny. Antitrust Regulators Approve the Deal Subject to Certain Divestitures Contemporaneous with Dean’s bankruptcy announcement in November 2019, the company had indicated that it was engaged in “advanced discussions” regarding its eventual asset sale to DFA. Given Dean’s status as the largest fluid milk processor in the industry, the potential impact of the deal immediately raised concerns about excessive consolidation in the market, and by January 2020, federal antitrust regulators were interviewing farmers about the acquisition’s potential impact on competition for their sale of raw milk. Farmers also expressed concern about the inherent conflict between DFA’s role in marketing farmers’ products and running its own processing plants, which would grow even larger once it acquired Dean’s plants. In addition, they claimed that DFA and Dean had a history of collusion, each having been the subject of antitrust class actions in 2007 and 2009. According to Bankruptcy Court filings, in a letter dated March 11, 2020, the Antitrust Division of the U.S. Department of Justice wrote to Dean’s secured creditors stating as follows: “Although the Antitrust Division’s review is at an early stage, we wish to advise you that an acquisition of Dean by DFA appears to pose a serious risk of anticompetitive harm that would likely need to be addressed either through divestitures or an injunction enjoining the transaction if DFA and Dean are unwilling or unable to agree to appropriate remedies needed to protect American farmers and consumers.” (Dkt. 1111 at 2; emphasis in original.) Dean, for its part, explained that the proposed deal with DFA would promote competition, benefitting both farmers and consumers. Both Dean and DFA also provided documents and data in response to antitrust regulators’ requests. Yet even after Dean’s APA with DFA was subsequently approved by the Bankruptcy Court, some farmers, stakeholders and shareholders expressed hope that their concerns over competition would cause antitrust regulators to block the deal. On May 1, 2020, less than a month after the Bankruptcy Court’s Order approving Dean’s sale to DFA, the U.S. DOJ, in conjunction with the offices of the Massachusetts and Wisconsin attorneys general, announced the conclusion of their investigation into the proposed acquisition. The regulators would require the divestiture of three plants, while allowing the balance of the transaction to go forward as planned. According to allegations in the regulators’ Complaint, if DFA had acquired the three plants in question, the deal would have reduced the options for milk consumers from three to two in the relevant geographic markets, with DFA occupying 70 percent of the market in northeastern Illinois and Wisconsin, and more than 50 percent in New England. The government also alleged that fluid milk’s high transportation costs and limited shelf life meant that DFA would have been the only remaining milk processing option for customers in portions of these geographic areas, making a merger involving these three plants presumptively unlawful. In addition, the government expressed concern about the history of anticompetitive coordination in the industry, making further coordination allegedly more likely to occur in these markets post-merger. As a result, the PAGE 16