DFA Feared Even Greater Judgment in Lawsuit Settlement

January 23, 2013 06:51 AM

The outcome of a jury decision simply couldn’t be predicted, and it’s a key reason why Dairy Farmers of America (DFA), the nation’s largest dairy cooperative, agreed to the $140 million settlement yesterday with dairy farmers in the Southeast. The settlement essentially matches what Dean Foods agreed to in the same case last fall. 

Neither DFA nor Dean acknowledged any wrong doing. The lawsuit has been pending nearly eight years. DFA has submitted more than six million pages of documents during the case. 

"The risk of a jury trial simply couldn’t be predicted," Rick Smith, DFA CEO, said in an impromptu appearance at the Southern Dairy Conference here in Atlanta late this morning. "On the low end, we could have faced a judgment of several hundred million dollars, and on the high end, more than $1 billion."

Even with a 70% chance of winning, those costs simply weren’t worth extending the suit, he said.

DFA was given the option of paying the $140 million settlement over five years. "Instead, we’re going to write a check and get it behind us," Smith. He notes that 2012 was a very good year for the cooperative, with net earnings of $85 million and $185 million of EBIDA (earnings before interest, depreciation and amortization).

"There will be no impact on members’ milk check because we have money in the bank and will be able to make the payment out of those accounts," he said. "But it will take four to five years to rebuild the balance sheet."

Smith also said DFA will settle another major lawsuit in the next 10 to 14 days, but he offered no other specifics.

The settlements will likely forestall several acquisitions the co-op has been considering. But it will not stall the whole milk powder plant DFA is building in Fallon, Nev. DFA is also considering building a processing plant in Michigan in the next several years.

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