The United States of America, Massachusetts, and Wisconsin sued Dairy Farmers of America, Inc. (DFA) and Dean Foods Company on May 1 to halt a proposed transaction that “would further consolidate two highly concentrated fluid milk markets: (1) northeastern Illinois and Wisconsin and (2) New England.”
DFA is a dairy cooperative, which boasts “nearly 14,000” members nationwide. DFA also directly owns fluid milk processing plants, while Dean, which recently filed for bankruptcy protection, owns competing plants. The transaction under scrutiny would transfer these plants to DFA, reducing competition in a market where there are already only three “significant competitive options.”
The government alleged that, if the transaction were to proceed, DFA would control 70% market share in the Illinois-Wisconsin market and over 50% in New England. They are concerned that “The acquisition would eliminate competition between DFA and Dean in these geographic areas, threatening to increase prices for supermarkets, schools, and other fluid milk customers—price increases that would ultimately be passed on to millions of individual consumers.”
To make its argument, the government offered that “The Supreme Court has held that mergers that significantly increase concentration in already concentrated markets are presumptively anticompetitive and therefore presumptively unlawful.”
The Herfindahl-Hirschman Index (HHI) is a measure of market concentration detailed in the Department of Justice’s Horizontal Merger Guidelines. The guidelines, which range from 0 to 10,000, consider mergers that increase HHI by more than 200, and result in HHI of over 2,500 to be presumptively unlawful. The government stated that the proposed transaction would “result is a highly concentrated market with an HHI of nearly 5,200 and an increase in HHI of nearly 1,900.”
The plaintiffs seek a preliminary and permanent injunction blocking the deal, as well as an award of costs.