April 5, 2020 – Further to the completion of an auction process that completed on March 31st and an April 3rd sale hearing, the Court hearing the Southern Foods Group cases approved the Debtors' $433.0mn sale of 44 facilities to the Dairy Farmers of America, Inc (“DFA” or the “Purchaser”) [Docket No. 1572]. The asset purchase agreement (the “APA”) governing the terms of the sale is attached to the DFA sale order.
On March 30th, DFA submitted a revised written bid of DFA [Docket No. 1278] which included a comparison of their increased offer against their stalking horse bid of February 16th. The revised bid increases the cash component of the DFA offer from $425.0mn to $433.0mn. In their revised offer DFA emphasized further non-cash improvements (see comparison table below) that they argue (i) increases net cash by over $100.0mn ($35.0mn by pushing to have the sale wrapped up a month earlier than planned) and (ii) should get proper credit for the assumption of $350.0mn in liabilities and $250.0mn in overhead.
DFA states: "As summarized below, as compared to its Stalking Horse Offer, DFA’s Final Offer increases the net cash to the estate by over $100 million and eliminates $50 million in non-503(b)(9) cure cost exposure for the estate. In addition, DFA’s Final Offer relieves the estate of over $350 million in Assumed Liabilities (e.g., underfunded single-employer pension liabilities, rolling stock, M&Eand real estate lease liability, 50% of transfer taxes, among others) and over $250 million in corporate overhead and severance costs (which will be assumed by DFA)."
In a press release announcing the results, the Debtors announced that: "following a comprehensive sale process and a competitive auction as part of its Chapter 11 process, Dairy Farmers of America ('DFA') has been named the winning bidder to acquire a substantial portion of Dean Foods’ business operations. Pursuant to the agreement, which is subject to final approval by the Bankruptcy Court, DFA will acquire the assets, rights, interests, and properties relating to 44 of the Company’s fluid and frozen facilities for $433 million.
In addition, as part of the court-supervised sale process, Dean Foods has designated Prairie Farms Dairy as the winner of the assets, rights, interests, and properties relating to 8 additional facilities, 2 distribution branches and certain other assets for $75 million in cash. Dean Foods has designated Mana Saves McArthur, LLC, and Producers Dairy Foods as winning bidders for the sale of the facilities located in Miami, Florida and Reno, Nevada, respectively. Harmoni, Inc. has been designated as the winning bidder for the Uncle Matt’s business."
The DFA Offer
In their letter to the Debtors detailing their revised offer, DFA attaches a revised asset purchase agreement which provides the following as to to purchase price:
"an amount in cash equal to (i) $433 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 Buyer Cure Costs (the result of the amounts in this clause (i), the 'Cash Purchase Price') minus (ii) the Customer Deductions Escrow Amount minus (iii) the Adjustment Escrow Amount minus (iv) $25 million unless (x) Buyer is designated the Successful Bidder on March 30, 2020, in accordance with the Bidding Procedures Order, (y) the Consultation Parties (as defined in the Bidding Procedures Order) have authorized the Seller to represent on the record at the sale hearing that the Consultation Parties support entry of the Sale Order and the consummation of the transactions contemplated by this Agreement and (z) the Consultation Parties have made no objection to entry of the Sale Order or the consummation of the transactions contemplated by this Agreement; and (b) the assumption of the Assumed Liabilities."
DFA filed the following comparison of their revised offer against that of February 16th:
[As previously reported] "On 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 bidding procedure 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'."
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