Dean Foods seeks bankruptcy protection, sale
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.
The Dallas-based company said it needs to address debt and unfunded pension obligations while it puts the company up for sale. The company has lost money in eight of its last 10 quarters, and posted declining sales in seven of its last eight quarters.
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.
Founded in Franklin Park in the 1920s, Dean's milk and dairy products had been a staple in homes for decades. However, the company has been squeezed by fierce competition and the rising price of milk, which has increased costs and eroded profit margins.
Losses also piled up after Dean's biggest customer, Walmart, built its own milk plant.
Americans are also drinking less cow milk, with nut milks and even bottled water cutting into its popularity. On top of that, retailers have been selling their house brands of milk at a loss to increase store traffic, Hoai Ngo of Bloomberg Intelligence wrote in a note.
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 just over three months ago, said the current path, led by a new senior management team, would lead to a turnaround of the company.
According to Rabobank, Dairy Farmers of America is the sixth-biggest dairy company in the world by sales, and Dean Foods is No. 11.
Davis Polk & Wardwell and Norton Rose Fulbright are serving as legal advisers to Dean Foods, while Evercore is serving as investment banker, and Alvarez & Marsal is its financial adviser.
• Associated Press contributed to this report