Judge OKs $68-Million Sale of Knudsen Dairy Assets to Kraft and Hughes Markets
A bankruptcy judge on Friday approved the $68-million sale of ailing Knudsen Food’s extensive California and Nevada dairy operations to food industry giant Kraft Inc. and to Hughes Markets Inc.
The sale saves hundreds of jobs, especially in Los Angeles, where Knudsen has two major plants, and ensures the continuation of the Knudsen name, known to generations of Californians for cottage cheese, yogurt and milk. The sale also dismantles what was the largest dairy in the West, with plants in nine states.
U.S. Bankruptcy Court Judge Barry Russell approved the sale after a joint second bid of $68.25 million by Dreyer’s Grand Ice Cream and Bongrain S.A., the French parent of Johnston’s Yogurt, was withdrawn.
Fred Holden, a lawyer for Oakland-based Dreyer’s, said Dreyer’s and Bongrain dropped from the bidding because they couldn’t find a partner to operate Knudsen’s milk production operations. Dreyer’s wanted Knudsen’s ice cream facilities and Bongrain wanted its yogurt and cheese plants.
“We’re very, very pleased the sale is approved,” said Knudsen Chief Executive John P. Brincko, who took charge of the troubled Los Angeles dairy company in a management shake-up four weeks ago. Brincko said the company is negotiating with several potential bidders for the company’s Foremost Dairy operations in Texas, Missouri, Arkansas, Kansas and Louisiana. He said, however, that a previously disclosed $90-million bid for those assets had been withdrawn.
Knudsen filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code on Sept. 17, after a year of financial difficulty. Knudsen’s parent, Winn Enterprises, hasn’t paid some of its creditors since September, 1985, and Knudsen owes its unsecured creditors more than $100 million.
The sale to Kraft and Hughes is expected to close by Oct. 17. Citicorp Industrial Credit, Knudsen’s lead banker, said previously that it would stop financing Knudsen’s day-to-day operations if the deal wasn’t closed by that date.
Brincko said he didn’t face similar pressure to sell the Foremost assets quickly. Prospective buyers “are asking for more information and more time, and we’re giving it to them,” he said. “There’s no deadline for us.”
Stephen P. Feldman, a lawyer for Knudsen, said the proceeds would go to Citicorp after a $296,000 lien is paid to Los Angeles Mutual Dairymen and a $5.7-million lien is paid to Wilkes Industries.
The acquisition of Knudsen plants in Visalia and Los Angeles gives Kraft its first major presence in California and a significant share of the dairy market in the state. Knudsen sold 47% of the cottage cheese purchased in California and is a leading producer of yogurt and ice cream.
Hughes Markets, based in El Monte, bought the Knudsen milk plants in Los Angeles, Modesto, Fresno and Las Vegas. Stater Bros., a Colton supermarket chain, has agreed to purchase “a large minority interest” in the Los Angeles milk and yogurt plant from Hughes, said Jack Brown, Stater chairman and chief executive.
Brown declined to say what Stater will pay for its share of the plant. He said he expected the sale to be completed next week. Both Hughes and Stater Bros. were formerly large Knudsen customers.
Hughes doesn’t want to operate the milk processing plants in Modesto and Fresno, where production has been drastically reduced, because Knudsen has lost both its customers and its suppliers, according to a source close to the negotiations. Fred McLaren, president of Hughes Markets, said he has discussed a sale of the Fresno plant to Foster Farms in Modesto but added, “There’s no deal at this point.”
