Top Two Dairy Processors Suiza, Dean Foods Plan to Merge

Got milk? Suiza Foods has lots of it--nearly a third of the U.S. market.

In a giant milk merger pairing the two biggest U.S. dairy processors, Suiza said Thursday it is buying Dean Foods Co. for about $1.5 billion in cash and stock, taking its rival’s name and moving Dean’s headquarters from the Chicago suburbs to Suiza’s base in Dallas.

If it clears regulatory hurdles, the deal would create a dairy and specialty foods powerhouse with about $10 billion in annual sales, 30,000 employees in 39 states and more than 30% of the U.S. fluid milk market. Suiza stockholders would own 65% of its shares. The combination of the two dairies, which sell milk under various regional brands, would also create a national distribution network.

As part of the deal, Suiza is handing over $165 million and six plants in five states in which Dean and Suiza overlap to the Dairy Farmers of America in exchange for a 33.8% stake in Suiza Dairy Group.

Both companies have manufacturing plants in Southern California. Dean owns Alta Dena Certified Dairy, a fluid milk processor and yogurt maker in Industry, and Suiza owns Morningstar Foods, which makes nondairy products such as creamer and soy milk at plants in Industry and Fullerton. Suiza officials say production at these plants does not overlap and no California operations will be divested.

Suiza also makes well-known products such as International Delight creamers and Second Nature egg substitute.

Dean makes Marie’s salad dressings and has a substantial regional pickle business.

Suiza will pay Dean Foods shareholders $40.92 in cash and stock, a 26% premium to Dean Foods’ closing price Wednesday, the companies said. The acquisition offer is $21 a share in cash and 0.429 of a share of Suiza stock.

Suiza also will assume $1 billion in debt.

The merger, which still requires antitrust regulatory approval, ends Dean’s struggle to keep pace as the two companies pushed neck-and-neck to gain market share and swallowed up many of the regional dairies that make up the still-fragmented U.S. dairy market.

U.S. Sen. Patrick Leahy (D-Vt.) criticized the deal, saying it would be a disaster for consumers.

“The acquisition would produce a company with vast market power not only over consumers but also over farmers who can expect to be offered even lower prices for their labor and their products,” said Leahy, who asked the Justice Department last year to look into potential anti-competitive activities of Suiza.

Shares of Franklin Park, Ill.-based Dean Foods, the No. 2 milk producer which was seeking a buying before the deal was announced Thursday, rose $5.37 to close at $37.87 on the New York Stock Exchange. Suiza rose 51 cents to close at $46.95, also on the NYSE.

Both companies have attempted to bolster flat milk sales with so-called value-added products such as single-serve milks, lactose-free milk and packaging and flavor innovations. Dean is in the process of introducing its highly popular single-serving Milks Chugs on a national basis.