January 22, 2010 / 8:51 PM / in 9 years

UPDATE 2-U.S. seeks to undo Dean Foods-Foremost Farms deal

(Adds Dean Foods comment, antitrust reporting requirement)

WASHINGTON, Jan 22 (Reuters) - The U.S. Justice Department filed a lawsuit on Friday against Dean Foods Co (DF.N) seeking to undo its April 2009 purchase of dairy processing plants from Foremost Farms USA because of competition concerns.

The Justice Department argued the deal eliminated “substantial competition” between the two companies in the sale of milk to grocery stores, schools, convenience stores and other retailers in Illinois, Michigan and Wisconsin.

In a lawsuit filed in U.S. District Court in Wisconsin, the Justice Department’s antitrust division asked a judge to order Dean Foods to sell the dairy processing plants it acquired and notify the government before any future acquisitions of milk processing operations.

“The purpose of the department’s lawsuit is to restore competition so that schools, grocery stores and other retailers in Illinois, Michigan and Wisconsin will pay lower prices for their milk,” said Christine Varney, assistant attorney general in charge of the department’s antitrust division.

Because the deal value was below a certain threshold at the time, $65.2 million, the companies did not have to notify antitrust authorities before moving forward with it. The states of Illinois, Michigan and Wisconsin joined the Justice Department’s lawsuit.

Dean Foods said in a statement it was disappointed with the government’s decision to challenge the deal, calling the lawsuit “unsound, both legally and economically.”

“We are anxious to have the opportunity to defend this pro-competitive transaction in court,” the company said.

Dean Foods shares closed down 3 cents to $18.48 on New York Stock Exchange. (Reporting by Jeremy Pelofsky; editing by Tim Dobbyn, Carol Bishopric and Andre Grenon)

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