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The complexity of Suiza Foods Corp.’s $1.65 billion acquisition of Dean Foods Co. appears to be slowing the Department of Justice’s antitrust review, though approval is expected. “We believe this transaction will close before year-end,” Suiza vice president and treasurer Cory M. Olson said Aug. 22. The antitrust division has recently conducted depositions of company officials and continues to seek more data on the milk industry. Sources said they are still investigating whether a divestiture proposal that involves Dairy Farmers of America, a Salt Lake City industry cooperative and a new firm called National Dairy Holdings would resolve competitive concerns with the deal. But officials at three of the entities involved in the complicated deal said they do not foresee antitrust officials stopping the deal. “We should get Department of Justice approval by the end of September,” Dean Foods spokeswoman Lu Ann Lilja said. “Everybody is optimistic about moving forward,” said Agnus Schafer, vice president of communications at Dairy Farmers of America Inc., which is involved in several side deals with Suiza aimed at winning antitrust clearance for the Dean Foods merger. Suiza and Franklin Park, Ill.-based Dean Foods certified compliance at the end of July with the DOJ’s second request for information, which is the government’s formal demand for more details on the deal. By law, Dallas-based Suiza is free to close the deal 30 days after certifying compliance unless the Justice Department files suit to block the merger. The companies also have the option of extending the deadline. Typically the DOJ demands that a company extend the deadline if it wishes to avoid litigation. But in this case, other factors preclude a quick closing. Most important, Suiza has not finished turning over to the government all the details on the transaction with National Dairy Holdings, which is being created to operate six divested plants. Olson said Suiza is expected to certify compliance on the National Dairy portion of the deal by the end of the month, which means the 30-day clock for DOJ action would not expire until late September. That deal also may not close until approved by shareholders. Dean Foods has set its vote for Sept. 14, while Suiza shareholders vote Sept. 21. The companies have indicated they do not intend to close the deal until the DOJ’s concerns are resolved. The merger’s biggest obstacle may be Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat highly critical of Suiza’s past acquisitions in New England. “If its purchase of Dean Foods is approved, a strong case can be made that Suiza is on the verge of becoming a monopoly in the milk processing business,” Leahy said at a July 26 hearing on dairy issues. “I have asked the Department of Justice and its antitrust division to closely monitor Suiza’s surging market dominance, and I again call to their attention the urgency of doing that.” Leahy has two objections. Suiza in many markets is the dominant purchaser of milk. That means in some areas of the country it could have monopsony power, which occurs when one buyer dominates a market, forcing sellers to agree to below-market prices. He also contends Suiza could demand monopoly prices for milk sold to grocery stores because it no longer would have a large rival. “Suiza is a new type of market force,” Leahy said. “There is no adequate name on the books for what Suiza has become, so let’s call these rare market entities Suizopolies.” Olson would not comment on the senator’s comments. Antitrust enforcement is supposed to be nonpartisan, but several antitrust lawyers said the regulatory agencies often act slowly when a powerful political leader is openly hostile to a deal. For the Department of Justice, no senator is likely to have more clout than Leahy, who as Senate Judiciary chairman can haul agency officials to Capitol Hill for hearings. To rebut Leahy’s charges, Suiza and Dean Foods have had to explain to the government how their antitrust divestiture plan would restore any competition lost by the merger. That has been more difficult in this case because the dairy industry is highly regulated, and some areas that raise the most anticompetitive concerns are outside of the antitrust division’s purview. According to documents filed with the Securities and Exchange Commission, Suiza’s solution is to create a new competitor, National Dairy Holdings, that would have about $1 billion in annual revenue and about 5 percent of the national fluid milk market. Getting to this point, however, is not as simple as selling a few plants. Involved in this drama are two farmer-owned cooperative: Dairy Farmers of America and Land O’Lakes. These entities are partially governed by the Capper Volstead Act, an 80-year-old law that effectively permits cooperatives to fix prices. To create National Dairy, Suiza proposes divesting six plants in Utah, Ohio, Florida, South Carolina and Alabama, markets where Dean and Suiza both have fluid milk processing facilities. These divestitures require the involvement of Dairy Farmers of America. The cooperative first would sell its 33.8 percent stake in Suiza’s fluid milk business for $165 million and the six plants. These assets would then pass to National Dairy, which also would use cash and a $210 million loan from First Union Corp. of Charlotte, N.C., to buy the Marigold Foods and Crowley Foods milk plants from Swiss giant Wessanen AG. Dairy Farmers of America would end up with a 50 percent stake in National Dairy, though it would have a minority voting stake. It also would have preferred supply agreements with Suiza and National Dairy. These agreements are only for a year at a time, but Suiza has pledged to renew the deal every year for two decades. If it does not, it may have to pay Dairy Farmers of America as much as $120 million. Of antitrust concern could be the market power of Dairy Farmers of America and Land ‘O Lakes. They would effectively be the preferred suppliers to the No. 1 and No. 2 fluid milk processors. Yet the dairy cooperatives are largely immune from the antitrust laws. The extra power DFA could gain also is an indirect issue in the merger because Suiza would not benefit from the coop’s new power. Suiza agreed to buy Dean in April after eyeing it for years. Merger talks broke off in February 1998 over disagreements regarding integration and management succession. Dean responded by acquiring Southern Foods Corp. But Dean’s stock price was weak and in March 2000 it hired Goldman, Sachs & Co. to evaluate strategic options. The chairmen of the two companies met in December 2000 at an event sponsored by DFA. Those talks led to serious merger negotiations. The deal is expected to result in $60 million in first year synergies. “As we move closer to completion of the Dean Foods merger, I’d like to reiterate our excitement about the opportunity that this merger holds for both groups of shareholders,” Suiza Chairman Gregg Engles said in an Aug. 7 investor conference call. Copyright (c)2001 TDD, LLC. All rights reserved.

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