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  Two Big Dairy Cos. Consolidate

By David Koenig
AP Business Writer
Tuesday, Sept. 21, 1999; 4:51 p.m. EDT

DALLAS –– Suiza Foods Corp., the nation's leading milk processor, is acquiring Southern Foods Group, a company with such well-known regional dairy brands as Borden, Elsie and Meadow Gold.

The combined company would be a national dairy powerhouse, with milk distribution in 46 states and combined annual sales of $6 billion.

"Southern takes us into geography that we weren't in, and but for Southern, we wouldn't be able to get into," said Suiza chairman Gregg Engles.

"They were one of the few big independent producers that we had an opportunity to do something with," he said. "It really makes us a national dairy company."

In addition to dairy products, Suiza produces packaged food and ice.

"This clearly establishes Suiza as the leader of the fluid-milk market, with about a 20 percent market share," said analyst Romitha Mally of Goldman Sachs. She said the acquisition makes Suiza a national player and therefore more attractive to large supermarket chains that want to buy goods from suppliers with broad reach.

"I think it's a terrific deal. Suiza is breaking away from the pack," said John O'Neil of PaineWebber. He said Suiza now has a stable of strong regional milk labels and will try to increase sales of nationally known brands such as Borden.

Suiza was founded in 1993 as a holding company for acquiring food and dairy processors and has grown rapidly through acquisitions, especially in the Southeast and Southern California, to 56 processing plants and 12,400 employees. It has made more than 30 acquisitions in the past three years.

Suiza's main rival, Dean Foods Co. of Franklin Park, Ill., with fiscal 1999 sales of nearly $3.8 billion, has also been acquiring smaller operations.

Suiza and Southern, both based in Dallas, will form a joint venture to include all domestic milk processing activities of both companies.

Suiza will own 66.2 percent of the venture, to be called the Suiza Fluid Dairy Group, with Southern's partner, Dairy Farmers of America Inc., owning the other 33.8 percent.

No cash will change hands in the deal, said Engles, but each company will contribute its assets to the joint venture.

Last year, Suiza had revenue of $3.3 billion.

Southern, with revenue of nearly $1.2 billion in 1998, has 25 plants and 5,100 employees. It is concentrated in Texas and Oklahoma but serves other markets, too.

Counting the full-year revenues of operations that Suiza has acquired during the past year, the revenue of the combined company for the 12 months ended June 30 would be about $6 billion, said Suiza's chief financial officer, Barry Fromberg.

Suiza said the combination would generate $10 million in cost savings in the first year. But Engles said no layoffs of plant closings are expected.

Southern Foods chief executive, Pete Schenkel, will become president of domestic milk operations and board vice chairman of the new joint venture.

Suiza also announced that its president and chief operating officer, G. Irwin Gordon, is leaving the company to pursue other, unspecified interests. His duties will be divided among several executives at different divisions, said Bill Brick, chief operating officer for U.S. fluid dairy operations.

Suiza plans to obtain up to $2 billion of new financing to refinance the debt of both companies, for future acquisitions and other purposes.

Directors of both companies have unanimously approved the transaction, which faces a federal antitrust review.

In trading Tuesday on the New York Stock Exchange, Suiza rose 6¼ cents to $33.31¼ a share.

© Copyright 1999 The Associated Press

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