Milkweed May 2006 Salvage

dean Foods’ Long-Ago Business Strategies & Huge debts Backfired by Pete Hardin Dean Foods wasn’t afraid to selectively “buy” business at Walmart and Starting in the mid-1990s, Suiza Foods — the predecessor corporation of Sam’s Club. Several years ago, Dean Foods paid Walmart roughly $15-$20 mil - Dean Foods – came rocketing out of nowhere to become the nation’s predomi - lion to gain selected access to Walmart/Sam’s Club stores in the region extending nant fluid milk processor by December 2001. roughly from the Ohio/Indiana border out to Omaha, Nebraska. That “payola” was aimed at keeping out a pesky competitor – Prairie Farms – from encroaching Suiza’s climb to the top of the fluid milk processing pile was built upon on Dean Foods’ desired store accounts. repeated acquisitions of fluid milk companies, starting with a modest firm in Puerto Rico (Suiza). In late December 2001, the newly installed George W. Bush administration’s Antitrust Division awarded a Christmas present to the 2007: $15/share dividend on borrowed $$$ Dean Foods’ all-time stupidity, when it came to incurring needless debt, Texas-based “home-boys” bankrolling Suiza’s debt-backed string of acquisi - traces back to early 2007, when the company announced it would pay to stock - tions. That gift? Hurry-up approval by federal antitrust overseers for consoli - holders a one-time, $15/share bonus. Previously, Dean Foods’ common stock - dating of the nation’s two largest fluid milk processors: Suiza Foods and (old) Dean Foods. Although Suiza was the acquiring firm, the merged entity retained holders received no earnings pay-outs. That one-time, $15 share was covered by the more familiar Dean Foods name, starting in late December 2001. borrowed money totaling $1.96 BILLION. Suiza Foods’ meteoric rise among the fluid milk processors was bankrolled In late winter/early spring 2007, Dean Foods’ stock promptly rose by by Texas-based, big-money boys – specifically, the mega-billions controlled by approximately $15/share. Insiders, such as Engle$, enjoyed a big pay-out. Once investment giant Hicks, Muse, Tate and Furst. Tom Hicks, who bought the Texas that pay-out occurred, values for Dean Foods common stock fell backwards by Rangers major league baseball team from an investor group that included George a little more than $15/share. But the $1.96 BILLION in debt remained – the W. Bush, was the lead money man at Hicks, Muse, Tate and Furst. The strategy interest costs from which ate into future cash reserves and operating profits. of those investors was to invest heavily in several key sectors of the economy, The March 2007 issue of The Milkweed reported estimates on how Engle$ while their Texas amigo in the White House encouraged federal antitrust officials and certain other Dean Foods’ directors lined their pockets with that $15/share to take a nap. Other sectors of Hicks’ heavy investments yielded massive market pay-out. We repeat those directors’ pay-outs here: shares in arcane sectors of the U.S. economy, including ice companies (such Gregg L. Engle$ ..........................................................$39,636,885 Reddy Ice) and radio stations under the Clear Channel empire. Alan J. Bernon ..............................................................$10,868,400 The “front man” at Suiza Foods (and post-merger, Dean Foods) was Ivy Hector M. Nevares ........................................................$ 9,303,670 League-educated Gregg Engle$ , the ultimate money grabbing yuppie. (The Milk - John R. Muse ................................................................$ 3,714,315 weed historically has spelled Engle$’ name with a dollar sign instead of an “s” – Jim L. Turner ................................................................$ 2,661,645 for good reason.) Engle$’ tenure at Dean Foods oversaw a tremendous string of Those five directors holding the most Dean Foods’ shares enjoyed a acquisitions – driven by borrowing. The growth behind Suiza and then Dean $66,185,115 pay-out from the $15/share dividend. But the dividends enjoyed by Foods was based upon borrowed billions. At one point in the 2009-2010 period, those top five directors were peanuts, compared to what financial institutions Dean Foods was carrying debt equal to roughly half of its annual sales volume. reaped. But Engle$ strategically bailed out as Dean Foods’ CEO and board chairman, taking with him Dean Foods’ most profitable subsidiary business as he headed $15/share dividend paid $743 million to banks for the exit – the White Wave division. In retrospect, Dean Foods borrowing $1.96 BILLION to pay out a one- Post-merger, the acquisitions kept on coming. Dean Foods’ market share time, $15/share stockholder bonus offers a stinking example of the financial irre - in some regions and sub-regions reached astounding levels. For example, a Mas - sponsibility that gripped many major players in the U.S. financial world … prior sachusetts official estimated that Dean Foods held a 70% market share for all to the Great Recession. In March 2007, The Milkweed listed the following banks packaged fluid milk sold in New England. And in highly-populated southern and financial institutions that held large amounts of Dean Foods’ stock shares. New England, Dean Foods held an 80% market share, that same official warned Hard to believe, but the following array of banks and lending institutions stashed Vermont’s United States Senator Patrick Leahy. Then, and presently, Leahy has away $743 million of the $1.96 BILLION borrowed (no doubt from some of the served as an “asleep-at-the-switch” member of both the Senate Judiciary and same institutions) to pay out the $15/share dividend. Agriculture Committees who has watched Dean Foods and Dairy Farmers of America eviscerate competition in the Northeast’s dairy industry – from farm to Barclays Global Investors UK Holdings ..................$163,943,700 supermarket dairy case. Iridian Asset Mgmt, LLC ............................................$108,764,205 United States Trust Co. of NY ....................................$ 82,392,735 A couple examples from southern New England reflect Dean Food’s strategic Vanguard Group, Inc. ..................................................$ 69,782,085 use of debt to erode competition in fluid milk processing/distribution in that region: State Street Corp. ........................................................$ 63,707,160 • Dean Foods paid $50 million to a regional supermarket chain – Stop and Deutsche Bank Aktiengesellshaft ................................$ 57,704,295 Shop – to cease fluid milk processing at its Readville, Massachusetts plant. In JP Morgan Chase & Co. ..............................................$ 55,581,630 turn, Stop and Shop took virtually its entire supply of packaged fluid milk from Mellon Financial Corp. ................................................$ 53,107,545 Dean Foods. Goldman Sachs Group ................................................$ 50,573,550 • In the late 1990s, Suiza Foods paid around $300 million to acquire New Capital Research & Mgmt. Group ............................$ 37,500.000 England’s largest fluid milk processor – Garelick Farms. Spirited bidding for the The devil-may-care borrowing (and lending) habits of major corporations prized Garelick business took place between Suiza and (old) Dean Foods. A for - and financial institutions, leading up to the Great Recession, was a heck of a mer (old) Dean Foods executive later confided that his fellow senior manage - party (for them) … while it lasted. ment team members were blown away by the price Suiza bid to acquire Garelick – an acknowledged gem among fluid milk processing firms . Post-Great Recession, back to reality Dean Foods, under Engle$, wasn’t afraid to cross the line when it came to The Great Recession, which hit this nation and the world during the second anti-competitive behaviors. Why worry about antitrust? Friends at the Bush II half of 2008, forced untold billions of taxpayer bailouts for financial institutions White House offered a cloak of immunity. In late summer 2006, a joint state- and a big run-up in federal debt. Presently, it’s been too easy for federal legisla - federal antitrust task force, which had started in late spring 2004, recommended tors and policy makers to forget just how close to the brink of Depression the indictments against Dean Foods and Dairy Farmers of America for federal unchecked, runaway financial largesse preceding the Great Recession brought antitrust law violations. But politically-connected higher-ups at the United this nation. The Obama administration inherited a financial sack of s _ _ _ from States Department of Justice’s Antitrust Division blocked those recommended the outgoing Bush II … and performed a near-miracle restoring this nation’s indictments. (During the Bush II administration, The Milkweed reported a high- economy and currency to far sounder bases. level DOJ Antitrust official – Joan Huggler – confided to a Vermont dairy farm The past decade has been a brutal period for the nation’s fluid milk busi - woman that the Antitrust Division couldn’t touch Dean Foods.) ness. The Great Recession dug into consumer dairy product demand, exacerbat - In the late 1990s, documents obtained in a subsequent private antitrust law - ing already deteriorating fluid milk sales trends. In truth, per-capita demand for suit showed how Dean Foods conspired with Dairy Farmers of America (the fluid milk had been deteriorating for at least three decades, prior to the Great nation’s largest dairy farmers’

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