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Southern Foods Group, LLC – Court Issues Bidding Procedures Order; for Debtors “Crazy Times” as Sales Process, Involving Dairy Farmers of America, Bondholders and Other Potential Bidders, Nears Conclusion

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March 19, 2020 – The Court hearing the Southern Foods Group (Dean Foods Company) cases issued an order approving bidding procedure for the sale of substantially all of the Debtors’ assets [Docket No. 1178]. It further scheduled a sale hearing for April 3, 2020, with sale objections due by April 1, 2020. 

Although the Court's order responds to the Debtors' bidding procedures motion of February 17th [Docket No. 925], much has changed in what has been a contentious month. The Debtors' motion, in addition to seeking bidding procedures and an auction/sale timetable, had also asked the Court to approve the selection of Dairy Farmers of America, Inc.as a stalking horse bidder (the "Stalking Horse") and to authorize an asset purchase agreement (the “APA”) in respect of a $425.0mn stalking horse bid.

The Court's present order makes no mention of the stalking horse, its bid or the APA; and the order reads very much as if the stalking horse is not still chomping at the bit. It is.

At a February 19th hearing, the Stalking Horse reiterated its intention to bid in advance of a March 30 bid deadline and stated that discussions with the Department of Justice left it comfortable that there would be no antitrust obstacle as to its bid. It also urged the Court not to extend the sale process at the last minute, particularly referencing the unclear intentions of bondholders as to a possible bid. Judge David Jones picked up on the concern, quietly admonishing counsel to the bondholders to "put up your money or be quiet" and that he would be "highly" skeptical of late input or objections from those potentially credit-bidding stakeholders. Counsel for debtor-in-possession ("DIP") lenders also voiced concerns that the sale process not drag out further, citing "major liquidity" issues that behoove getting a sale done.

So in addition to the Stalking Horse and bondholders, what other interest exists in the Debtors assets? Apparently, quite a bit. Counsel for the Debtors noted an "extraordinarily busy process on the M&A front" and added that there had been 94 visitors to the Debtors' data room, with 65 visitors currently there. So busy in fact, that several parties raised concerns with Judge Jones that they were not getting full cooperation on the diligence front; a complaint that the Debtors pushed back on stating that were doing all they could in "crazy times."

Key Dates

  • Bid Deadline: March 30, 2020
  • Sale Objection: April 1, 2020
  • Sale Hearing: April 3, 2020

Background on Stalking Horse Bid

In a press release announcing the transaction, the Debtors announced that "it and certain of its subsidiaries have entered into an asset purchase agreement with Dairy Farmers of America ('DFA') through which DFA will acquire a substantial portion of Dean Foods’ business operations. Pursuant to the agreement, if consummated, DFA will acquire 44 of the Company’s fluid and frozen facilities and the real estate, inventory, equipment, and all other assets necessary to operate such facilities (the 'Stalking Horse Assets')."

Eric Beringause, President and Chief Executive Officer of Dean Foods, added: “We have had a relationship with DFA over the past 20 years, and we are confident in theirability to succeed in the current market and serve our customerswith the same commitment to quality and service they have come to expect."

Key Terms of the APA:

  • Stalking Horse Assets: consist of (a) 44 of the Debtors’ 57 manufacturing facilities, including real estate, inventory, equipment and all other assets necessary  to  operate such facilities,  (b) all fluid and frozen assets associated with such facilities, (c) certain real estate and equipment relating to one previously closed  manufacturing facility, (d) certain intangible assets, and (e) ownership interest in certain joint ventures.
  • Purchase Price: [From the bidding procedures motion] "The aggregate consideration for the Stalking Horse Assets shall be approximately $425.0mn, which shall consist of the following:
    1. cash consideration in the amount of $322.0mn; and
    2. payment of cure costs associated with the Assumed DFA Milk Contracts in the amount of $103.0mn and pro rata reduction in Administrative Claims held by DFA up to $62.5mn.

Portions of the purchase price equal to (x) $35.0mn to secure Debtors’ indemnification obligations with respect to certain customer claims and (y) $20.0mn to secure the parties’ obligations in respect of a purchase price adjustment, if any, to the extent the Acquired Assets’ target working capital deviates from its closing date working capital will, in each case, be held in escrow subject to release upon the terms and conditions set forth in the Stalking Horse Agreement."

The APA provides that the Purchase Price is: "an amount in cash equal to (i) $425 million (the ‘Base Purchase Price’), plus the amount, if any, by which Net Working Capital exceeds the Target Net Working Capital, minus the amount, if any, by which the Target Net Working Capital exceeds the Net Working Capital minus the amount of the Assumed Indebtedness, minus the amount of the Buyer Cure Costs (the sum of the amounts in this clause (i), the ‘Cash Purchase Price’) minus (ii) the Customer Deductions Escrow Amount minus (iii) the Adjustment Escrow Amount; and (b) the assumption of the Assumed Liabilities."

…where…

“Customer Deductions Escrow Amount” means an amount in cash equal to $35.0mn
“Adjustment Escrow Amount” means an amount in cash equal to $20.0 million.
“Target Net Working Capital” means $214.4 million.

  • Bid Protections: A break-up of $15.0mn and an expense reimbursement of $8.0mn. There is also a minimum overbid of $5.0mn.

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The post Southern Foods Group, LLC – Court Issues Bidding Procedures Order; for Debtors “Crazy Times” as Sales Process, Involving Dairy Farmers of America, Bondholders and Other Potential Bidders, Nears Conclusion appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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