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 jdubner@porterwright.
com.
PAGE 17