Why Milk Producer Dean Foods Filed for Bankruptcy

Dallas-based Dean Foods Co. (NYSE: DF) announced Tuesday morning that it has filed for Chapter 11 bankruptcy protection as it prepares for a sale to Dairy Farmers of America (DFA), the largest U.S. dairy cooperative, with more than 14,000 dairy farms, along with processing and manufacturing facilities for brands like Borden, California Gold and Cache Valley Creamery.

Dean Foods said its filing was made to “protect and support its ongoing business operations and address debt and unfunded pension obligations” as it negotiates a sale to DFA. A possible sale would be subject to regulatory approval and to a better offer, if one is received as part of the bankruptcy proceeding.

The company said it has received $850 million in debtor-in-possession financing from existing lenders and, if approved by the bankruptcy court, plans to use the funds along with cash on hand and operating cash flow “to support its continued operation throughout this 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.” The company currently employs around 15,000 people across the United States.

According to the filing, the company’s largest unsecured creditor is the Central States Southeast & Southwest Pension Plan, with a $722 million contingent, unliquidated claim. Bank of New York Mellon holds senior unsecured notes due in 2023 valued at $700 million, and DFA is the third-largest creditor, with a trade payable claim of about $173 million.

At the end of June, Dean Foods listed current liabilities of $654 million and long-term debt of about $985 million. For the trailing 12 months through June, cash flow from operations totaled just under $3 million. In 2018, operating cash flow totaled $42.84 million.

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Eric Beringause, the company’s CEO, said:

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.

In 2012, Dean Foods spun out about 12% of its business into WhiteWave Foods, which was sold five years later to Danone for $12.5 billion. In May of 2013, Dean Foods distributed all but 19.9% of the WhiteWave stock it still owned. At that time, the company said it planned to dispose of all remaining WhiteWave stock within 18 months.

DFA, which was formed in 1998, replaced a faltering system of regional milk processors and grocers with a nationwide cooperative that now markets its members’ milk and maintains 47 plants across the country that manufacture dairy products like cheese, butter and ice cream.

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