Dairy Farmers of America (DFA) has agreed to buy a “substantial portion” of bankrupt local dairy giant Dean Foods for US$425m.

The two parties have been working to reach an agreement since Dean Foods filed for Chapter 11 bankruptcy protection in November.

As part of the proposed deal, DFA has agreed to acquire 44 of Dean Foods’ facilities and associated direct-store-delivery systems, as well as certain corporate and other assets and functions, according to a statement.

However, DFA said its bid amounts to a “stalking horse” offer which will set the floor for the sale of Dean Foods’ assets for any other interested parties that want to submit a counter-bid.

Its move might be seen as a way of protecting the US dairy market against disruption by ensuring Dean Foods’ assets are not disposed of cheaply or piecemeal to an unsuitable bidder or bidders.

In the statement issued yesterday (17 February), Rick Smith, CEO of Kansas City-based DFA – a dairy cooperative owned by 14,000 farmers – said: “As Dean is the largest dairy processor in the country and a significant customer of DFA, it is important to ensure continued secure markets for our members’ milk and minimal disruption to the US dairy industry.

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“As a family, farmer-owned and governed cooperative, no one has a greater interest in preserving and expanding milk markets than DFA. We are pleased that we have come to an agreement on a deal that we believe is fair for both parties.”

Eric Beringause, president and CEO of Dallas-based Dean Foods, said: “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.” 

If approved by the Bankruptcy Court at a hearing scheduled for 12 March, DFA will serve as a “stalking horse bidder” for the Dean Foods’ assets in a court-supervised sales process, whereby the agreement with DFA will set the floor for the sale of the assets.

Accordingly, the proposed agreement is subject to higher or otherwise better offers.

The deadline for interested parties to bid for any or all of the assets included in the DFA agreement is 31 March, while for assets not included in the bid it is 13 April.