Antitrust officials have been investigating a potential merger of the struggling milk giant Dean Foods with Dairy Farmers of America, a marketing cooperative.
When the struggling milk giant Dean Foods filed for bankruptcy protection in November, it also announced a possible path forward — a takeover by Dairy Farmers of America, a marketing cooperative.
But the news that Dean Foods was in “advanced discussions” with the co-op did little to alleviate the concerns of dairy farmers. Many argued that a merger would reduce competition and suppress the price of raw milk, especially in regions where industry consolidation has made it difficult for farmers to stay in business.
Now, federal investigators are examining those concerns. Since at least December, antitrust officials at the Justice Department have been scrutinizing the potential Dean Foods merger, speaking with farmers and the lawyers who represent them about how a deal would affect milk pricing and competition, according to emails reviewed by The New York Times and interviews with people familiar with the inquiry.
The Justice Department declined to comment on the investigation. But this month, a department lawyer sent an email to farmers who sell raw milk to Dean Foods, asking to discuss the possible merger over the phone.
“We are investigating Dairy Farmers of America’s potential acquisition of Dean Foods and the potential loss of competition for selling raw milk,” the email said, according to a copy reviewed by The Times.
The lawyer, Nate Harris, planned to ask the dairy farmers how they came to work with Dean Foods and whether they would have options to sell their milk elsewhere if Dairy Farmers of America acquired the company, according to Dana A. Zakarian, a lawyer representing a group of dairy farmers in a lawsuit against the cooperative in Vermont. Mr. Zakarian said he had discussed the email with Mr. Harris after one of his clients received it.
The existence of the email was reported earlier by The Wall Street Journal.
Dairy Farmers of America, the largest dairy co-op in the United States, was founded to help small farmers market their raw milk to dairy processing companies like Dean Foods, which prepare milk for distribution to retailers.
Over the years, however, the co-op has also invested heavily in processing, meaning it buys some of the raw milk that its marketing branch sells. Those investments have created a conflict of interest, some dairy farmers argue, because processors benefit from lower milk prices, while farmers benefit from higher ones. A deal to acquire Dean Foods would significantly expand the co-op’s processing operations, heightening that conflict of interest, critics of the potential merger say.
Monica Massey, the executive vice president at Dairy Farmers of America, said the co-op had spoken with the Justice Department to “keep them apprised” of its thinking. A takeover deal with Dean Foods would require approval from the bankruptcy court as well as federal regulators.
“We have not reached an agreement with Dean Foods for its assets, so it may be premature, but the Justice Department has a job to do,” Ms. Massey said. “If we reach a deal, we would fully cooperate with D.O.J. officials as we have with past transactions.”
The Justice Department appears to have been monitoring the situation since the early stages of the Dean Foods bankruptcy proceeding, when department lawyers filed notices of appearance in the case, effectively declaring that the government had an interest in the outcome. A spokeswoman for Dean Foods declined to comment.
On Dec. 20, an antitrust official at the Justice Department, Karl Knutsen, called Mr. Zakarian and Joel G. Beckman, another lawyer working on the Dairy Farmers of America lawsuit in Vermont, asking them to waive a confidentiality provision to allow investigators to read depositions and other documents in the case.
The Vermont suit alleges that Dairy Farmers of America has engaged in a wide range of anticompetitive practices over the years, striking deals with other co-ops not to poach one another’s members and sharing milk-pricing information to suppress payments to farmers.
Dairy Farmers of America has denied those allegations. But in September, the judge overseeing the case allowed it to move to a trial, writing in her decision that the plaintiffs had presented evidence from which a “rational jury could conclude that the D.F.A. management favored growth of its commercial operations and empire building over the interests of its farmer-members.”
The Justice Department’s apparent interest in the Vermont case might indicate that government lawyers are weighing a broader investigation into Dairy Farmers of America’s practices that would go beyond the possible merger with Dean Foods, said Peter Carstensen, a former antitrust lawyer at the Justice Department.
“They’re really focusing in on the impact on farmers and how this kind of transaction could greatly increase the capacity of D.F.A. to engage in anticompetitive practices,” Mr. Carstensen said. And that line of inquiry could lead government investigators to “take a much more critical look at the way D.F.A. is using its existing market positions and think about whether there are workable remedies for that conduct.”
Not all dairy farmers oppose the potential merger. Some argue that it would help farmers because it would guarantee a stable market for their milk at a time when milk consumption is declining nationwide.
“If markets are in trouble, any deal would be beneficial to our dairy farmers,” said Ms. Massey, the co-op’s vice president.
For now, however, there is still no official proposal for a deal. Dean Foods has said it would consider other buyers. And after the company’s bankruptcy filing, bondholders raised concerns about a sale to Dairy Farmers of America, citing the possibility of a lengthy antitrust investigation.
Source: nytimes.com
