Dean Foods pointed to "challenging operating environment"

Dean Foods pointed to "challenging operating environment"

Dean Foods, the under-pressure US dairy major, has started voluntary Chapter 11 proceedings – and revealed it is in talks to sell up to local peer Dairy Farmers of America.

Amid falling milk consumption and rising competition – particularly in the private-label market – Dean Foods has seen sales and profits hit. 

The owner of the DairyPure milk brand and TrueMoo flavoured milks posted a net loss of US$327.4m last year based on revenues of $7.8bn. In 2007, Dean Foods generated $11.8bn in sales.

In February, the company announced a strategic review of the business. Seven months later, Dean Foods said it had decided to press ahead with an internal transformation programme under recently-appointed chief executive Eric Beringause rather than pursue previously suggested options of a sale or joint venture.

"The actions we are announcing today are designed to enable us to continue serving our customers and operating as normal as we work toward the sale of our business," Beringause said today. "Since joining the company just over three months ago, I've taken a hard look at our challenges, as well as our opportunities, and truly believe we are taking the best path forward."

Dean Foods has started the Chapter 11 proceedings in Texas, where the company is based. The business has received a commitment of around $850m in debtor-in-possession ("DIP") financing from some of its existing lenders, led by Rabobank.

Following court approval, Dean Foods said it expects to use the financing, together with cash on hand and operating cash flows, to "support its continued operation throughout this process", including payment to suppliers and vendors "in full under normal terms for goods and services provided on or after the filing date".

Dean Foods said it is in "advanced discussions" with Dairy Farmers of America – another of the largest dairy businesses in the US – over a potential sale of "substantially all" the company's assets.

If the parties strike a deal, a sale would be subject to regulatory approval and to higher or otherwise better offers in the bankruptcy.

Beringause added: "Since joining the company just over three months ago, I've taken a hard look at our challenges, as well as our opportunities, and truly believe we are taking the best path forward. In recent months, we have put in place a new senior management team that not only has considerable experience in the dairy and consumer product industries, but also in executing major turnarounds. I am confident we have the right people in place to lead us through this process."

just-food has approached Dairy Farmers of America for comment.