Food & Agriculture Quarterly June 2020 - Page 17

FOOD & AGRICULTURE QUARTERLY | JUNE 2020 government obtained consent from Dean and DFA to enter into a final judgment – subject to a finding by the U.S. District Court that the proposed judgment is in the public interest – requiring the divestiture of plants located in Harvard, Illinois; De Pere, Wisconsin; and, Franklin, Massachusetts, as well as associated equipment and other assets related to fluid milk production, to an acquirer or acquirers approved by the government. The Interplay of Bankruptcy and Antitrust Law in the Dean-DFA Transaction Primary among the questions raised by the Dean-DFA transaction is whether antitrust regulators would have reached any different conclusions about the competitive effects of the proposed merger if Dean had not been in bankruptcy at the time the deal was announced. While the antitrust laws plainly apply in the bankruptcy context, as evidenced by the divestitures ultimately required here, the second sentence of the DOJ’s press release emphasized that “[t]he department’s investigation was conducted against the backdrop of unprecedented challenges in the dairy industry, with the two largest fluid milk processors in the U.S., Dean and Borden Dairy Company, in bankruptcy, and Dean faced with imminent liquidation.” The Complaint also recounted how “the growing financial crisis caused the bankruptcy process to be accelerated in order to find buyers for Dean’s assets before the company ran out of money to continue operating.” But while the comments of Assistant Attorney General Makan Delrahim of the Antitrust Division also recognized that “[t]his is a tumultuous time for the dairy industry, with the two largest fluid milk processors, Dean and Borden Dairy Company, in bankruptcy, and a pandemic causing demand for milk by schools and restaurants to collapse,” AAG Delrahim nonetheless concluded that: “In the face of these challenges and Dean’s worsening financial condition, the department conducted a fast but comprehensive investigation, and our actions today preserve competition for fluid milk processing in northeastern Illinois, Wisconsin, and in New England.” Accordingly, while the government’s review may have been expedited by Dean’s financial condition, there is no indication that its analysis was modified or in any way less robust. One way in which the government’s analysis of the Dean- DFA transaction could have been impacted by Dean’s bankruptcy would have involved an application of the “failing firm” defense, as set forth in § 11 of the DOJ/FTC Horizontal Merger Guidelines. The basic requirements for establishing such a defense in support of an otherwise potentially anticompetitive merger are: 1. The allegedly failing firm would be unable to meet its financial obligations in the near future; 2. It would not be able to reorganize successfully under Chapter 11 of the Bankruptcy Act; and 3. It has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger. Here, however, there is no indication that the government applied that doctrine to its analysis of the Dean-DFA transaction. By contrast, the government did suggest that Dean’s smaller, contemporaneous transaction with Prairie Farms Dairy may have been viewed through the lens of a “failing firm” defense when it stated that: “The department is also closing its investigation into Prairie Farms’ proposed acquisition of fluid milk processing plants from Dean in the South and Midwest after concluding that the plants at issue likely would be shut down if not purchased by Prairie Farms because of Dean’s distressed financial condition and the lack of alternate operators who could timely buy the plants.” Along with the required divestitures, the absence of a similar statement regarding the Dean-DFA transaction again suggests that the substance of the government’s analysis of the competitive effects of the deal was not unduly influenced by Dean’s status in bankruptcy. Jason Dubner is a partner and focuses his practice on complex commercial litigation and arbitration. He can be reached at 312.756.8466 or [email protected] com. PAGE 17