EVANSVILLE, Ind., Feb. 17 (UPI) -- After filing for bankruptcy protection in November, America's largest milk producer, Dean Foods, announced Monday that it plans to sell the majority of its business to Dairy Farmers of America.
The nation's largest farmer-owned dairy cooperative has offered $425 million to buy "44 of Dean's facilities and associated direct store delivery system," according to Dairy Farmers of America.
"As Dean is the largest dairy processor in the country and a significant customer of [Dairy Farmers of America], it is important to ensure continued secure markets for our members' milk and minimal disruption to the U.S. dairy industry," said Dairy Farmers of America's president and chief executive Rick Smith.
Dean Foods has struggled since one of its major customers, Walmart, opened its own milk processing plant in Indiana in 2018.
Dean filed for bankruptcy Nov. 12 in the U.S. District & Bankruptcy Courts of the Southern District of Texas. The company announced that same day that it was negotiating a potential sale with Dairy Farmers of America.
"The reason Dairy Farmers of America is interested is they are a major supplier of milk to Dean Foods," said Bob Cropp, a professor emeritus of the University of Wisconsin-Madison's Department of Agriculture and Applied Economics.
"If they didn't have Dean Foods, they would have to really struggle to find a home for their dairy farmers' milk. They need those plants operational," Cropp said.
Before the deal can be finalized, it must be approved by the bankruptcy court. The U.S. Department of Justice also is reviewing the sale to ensure it doesn't violate antitrust laws, Cropp said.
"This would give Dairy Farmers of America over 60 percent of the bottled milk market," he said.
Acquiring such a large portion of the bottled milk market could give Dairy Farmers of America an advantage when negotiating milk contracts, Cropp said. Large national grocery store chains have dominated the fluid milk market, using their buying power to set prices.
"With larger control over the supply, Dairy Farmers of America might be in a better position to negotiate with those larger accounts," Cropp said.
Dean Foods president and chief executive Eric Beringause said in a statement that he is confident in the dairy co-op.
"We have had a relationship with DFA over the past 20 years, and we are confident in their ability to succeed in the current market and serve our customers with the same commitment to quality and service they have come to expect," Beringause said.
Fewer than two months after Dean filed for bankruptcy, another major milk producer, Bordon Dairy, also filed for bankruptcy. The company said new competition, fewer milk drinkers and shrinking profits have made its debt load "unsustainable."
Bordon has said it had no intention of merging with Dean, according to Bloomberg News.