Knudsen Sale to Hughes, Kraft OKd : Kraft, Hughes Markets Get Approval to Buy Knudsen

A bankruptcy judge today approved the sale of about half of the operations of ailing Knudsen Foods Inc. to food industry giant Kraft Inc. and Southern California grocery operator Hughes Markets Inc.

U.S. Bankruptcy Court Judge Barry Russell approved the sale of most of Knudsen’s California and Nevada operations for a previously agreed upon price of $68 million. Knudsen is the largest dairy operator in the West.

An 11th-hour threat by the French conglomerate Bongrain S.A. and Dreyer’s Grand Ice Cream Inc. of Oakland was abandoned when those companies were unable to find a partner willing to take on Knudsen’s fluid milk operations. Bongrain and Dreyer’s were interested only in Knudsen’s cottage cheese, yogurt and ice cream production facilities.

Fluid Milk to Hughes

In their joint offer, Kraft, of Glenview, Ill., would take over Knudsen’s cultured dairy products while El Monte-based Hughes would take over primarily the fluid milk units.

Those plants are located in Visalia, Modesto, Fresno, Los Angeles and Las Vegas.

The Knudsen-Kraft deal is expected to close on Oct. 17.

Knudsen needed court approval for the sale because it is operating under the protection of federal bankruptcy rules.

‘Extreme Emergency’

Russell largely dismissed objections to his expedited handling of the Knudsen sale, saying, “This is an extreme emergency.”

Knudsen has testified previously that it is losing about $500,000 a week, and Knudsen’s attorney warned the court Thursday that further delays in the sale could worsen Knudsen’s financial situation.

Knudsen has facilities in California, Nevada, Hawaii, Arizona, Texas, Louisiana, Arkansas and Missouri. In California alone, Knudsen has accounted for up to 25% of the dairy business, more than three times as much as its nearest competitor.

Knudsen’s financial problems have generally been attributed to too-fast growth and poor management, since last September.

Missed Payments

Those difficulties became severe in mid-July when Knudsen missed $18 million in payments due to suppliers.

Since then, some of Knudsen’s creditors went to court in an effort to force it into bankruptcy liquidation, it has shuffled its management twice to bring in crisis-management experts and it has lost some suppliers and customers worried that they may not be paid or that they may find themselves without dairy supplies to sell.