By James C. Webster

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, March 30 - Dean Foods has agreed to settle a Department of Justice antitrust suit by selling the fluid milk processing plant at Waukesha, Wis. that it acquired from the Foremost Farms USA cooperative almost two years ago. The settlement allows Dean to keep the DePere, Wis. plant that it acquired in the $35 million transaction that DOJ and three states challenged in court.

DOJ’s Antitrust Division says that the settlement, if approved by a federal judge in Milwaukee, would “restore competition in the sale of milk to schools, grocery stores, convenience stories and other retailers in Illinois, Michigan and Wisconsin.” But it concedes in court papers that the deal falls short of what its lawyers sought when they sued to reverse the deal in January 2010.

DOJ says that divestiture of the Waukesha plant addresses most of the harm that it alleged but it “likely will have little effect on competition for fluid milk and school milk consumers in the northernmost section of the affected region.” But the settlement “avoids the time, expense, and uncertainty of a full trial on the merits” and “will create an independent competitor able to compete for business” serving most of the population of the relevant market, it adds.

The sale, to be completed within 90 days of approval of the settlement, would give the new owner “a distribution network, an established customer base and a brand (Golden Guernsey) with strong brand equity,” DOJ said in a court filing. The sale has to satisfy DOJ that the buyer could operate “as a viable, ongoing business that can compete effectively in the relevant market.” It added that the Waukesha plant has significant excess capacity that will “give the purchaser of the plant the incentive to compete aggressively for new business.”

Christine Varney, assistant attorney general in charge of Antitrust Division, said the agreement would mean lower prices for schools and consumers in parts of the three states and that the requirement that Dean notify the department of future milk plant acquisitions valued at more than $3 million “will ensure that competition remains in this important industry.”

The divestiture “is a small negative, but not material” factor in Dean’s financial position, said food industry stock analyst Farha Aslam of the Stephens brokerage. She expected that Dean likely will take a small loss on the sale. The requirement that Dean notify DOJ of future milk plant acquisitions “implies that Dean’s future acquisitions will face significant regulatory scrutiny will make growth via tack-on acquisitions more difficult for the company,” she said.

The State of Michigan and Dean reached a separate settlement agreement covering school milk sales in the state’s Upper Peninsula, including a mechanism that sets a maximum school milk bid price based on the prices Dean charged for school milk during 2010.

The proposed settlement, along with the department’s competitive impact statement, will be published in the Federal Register, inviting public comments within 60 days.

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