Little-known Dallas DALLAS >> In less than eight years, a Dallas investor who started without a cow or barn has built the nation's largest dairy processor, drawing the scrutiny of antitrust regulators and the scorn of consumer advocates.
firm dominates
dairy biz
Meadow Gold owner attracts
attention of Justice DepartmentBy David Koenig
Associated PressNeither Gregg Engles nor his company, Suiza Foods Corp., is a household name, but the average American likely has some Suiza products in his refrigerator. Meadow Gold Dairies in Honolulu and Hilo are among its holdings.
Suiza is the nation's largest dairy processor, and it's about to get a lot bigger. If regulators approve its $1.5 billion purchase of its closest rival, Dean Foods Co., Suiza would control about one-third of the U.S. market for fluid milk.
Critics say Suiza's ability to consolidate the fragmented dairy industry is costing consumers more money every time they buy milk.
This week, University of Connecticut researchers said leading supermarkets and dairy processors -- singling out market-dominating Suiza -- have gouged New England milk consumers by nearly $50 million since 1997. The study hinted the stores and Suiza raised prices in the hope consumers instead would blame a controversial price-support program designed to keep small dairy farmers in business.
"Suiza is following the approach that the best way to eliminate competition and increase market power is to buy competitors and then dismantle them," Sen. Patrick Leahy, D-Vt., said this week. "They end up with no competitors and tons of market power."
Suiza officials declined to be interviewed. In a conference call with analysts this week, Suiza's chief executive dismissed the Connecticut study as a political sop to supporters of dairy price-supports.
Suiza's story features a restless investor, a veteran dairy man and a company with an insatiable appetite for devouring small regional dairies.
In the late 1980s, Engles bought Reddy Ice Co. from what is now 7-Eleven Corp. and more than doubled its sales in two years through buying other ice makers.
In 1993, Engles was playing golf with Tex Beshears, who had run 7-Eleven's dairy division. Beshears told Engles his acquisition strategy could work just as well in the dairy business. Before the golfers finished nine holes, Engles has said, they were partners.
The duo bought a Puerto Rican dairy in late 1993 and took its name, Suiza, the Spanish word for Swiss. That marked the beginning of a buying spree that has outlasted Beshears, who retired from the board of directors two years ago. The company went public in 1996 and hit $1 billion in sales the next year.
Suiza first drew Wall Street's attention when it paid $960 million for Morningstar, another former 7-Eleven unit. The deal extended Suiza's product line to include International Delight coffee creamers, Lactaid lactose-free milk, Second Nature egg substitute, yogurt and other non-milk products.
The deal gave Suiza the heft to supply today's huge grocery chains. They want suppliers with the size and geographic reach to serve their far-flung stores at costs.
In Hawaii, Suiza's dairy products are sold under the Meadow Gold brand.
As Suiza added dairies, it often consolidated operations and closed plants to boost profits. It has proved a winning strategy. Those earlier acquisitions, however, would pale next to Suiza's latest move: In April, it said it would buy its closest rival, Dean Foods Co. Suiza would take the Dean Foods name, creating a company with $10 billion in annual sales -- if the merger is approved by antitrust regulators.
Suiza had trouble with regulators during the Clinton administration. In 1999, the Justice Department filed a lawsuit to block Suiza's $86 million acquisition of an Ohio milk producer, claiming it could have led to higher milk prices for some Kentucky schools. Suiza settled the lawsuit by selling a Kentucky dairy.
In Congress, several Democratic senators have proposed legislation that would make food-industry acquisitions more difficult. Leahy, senior Democrat on the Agriculture Committee, has asked the Justice Department to investigate Suiza for anticompetitive behavior.
Anticipating the antitrust review, Suiza has offered to turn over six processing plants to the Dairy Farmers of America. The plants are in regions, including the Southeast and Upper Midwest, where Suiza and Dean compete head-to-head.
If the Dean Foods purchase is approved, Engles, just 44, would be chief executive of the new company and replace Howard Dean, grandson of his company's founder, as chairman when Dean retires in July 2002. Analysts wonder what Engles could do for an encore -- there are no other large U.S. processors to buy.