Suiza Foods has made a bid for Dean Foods.

The biggest US dairy processor and distributor, Suiza Foods, has offered $1.5 billion for its largest rival, Dean Foods. Dean has not been faring well recently, but the huge synergies expected from the deal should be enough to make up for any difficulties bringing it back to health. Suffering from increasing competition, rising costs and technological difficulties, Dean Foods announced in March that it had hired Goldman Sachs to analyze its strategic options. Suiza Foods, eager to take on board its largest rival, made a $1.5 billion bid for the company and agreed to take on $1 billion in debt. The combined company would make $10 billion annually from the sale of milk and dairy products across the US.

The merger would end a long running battle, with the two companies no longer racing to keep up with the other's market share. Dean and Suiza have both swallowed many regional dairies in the push to gain scale, but the two companies still expect further gains from the jump in size. A joint press release predicted annual synergies of $120 million after three years.

The two companies have been in talks, on and off, for around three years. But discussions got going again in December after Dean reported disappointing Q2 results. Other companies approached Dean after it publicized the Goldman Sachs appointment but they were mostly interested in buying only parts of the business. Suiza was accepted because it was willing buy the entire company.

However, Suiza's enthusiasm may not last long. The merger of the US's first and second largest dairy processor and distributors, would hold an unassailable lead in US milk processing market, with a market share three times greater than its nearest rival. Antitrust regulators are therefore unlikely to take kindly to the deal. The groups are selling six dairies in an effort to reduce their market share in any particular region, but a long regulatory review is still almost inevitable. Although more asset sales may be required to appease the regulator, it seems likely that the merger will ultimately gain approval and the two companies will be able to take advantage of their combined scale.

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