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Tuesday, September 28, 2010

Bankruptcy Trustee Moves for Veblen West Dairy Auction

The other shoe drops in the Veblen manure pile: bankruptcy trustee Forrest C. Allred filed a motion for sale of the bankrupt Veblen West Dairy in U.S. Bankruptcy Court yesterday. Judge Charles L. Nail granted the motion to set the auction date for October 8. That's next Friday. Any objections must be filed by next week Thursday and will be heard by Judge Nail the same day right before the proposed auction.

Bankruptcy receiver AgStar and Madville Times readers knew this was coming. So do Veblen East bankruptcy-sale purchasers Vista Family Dairies: that new corporation, formed this month by partners of former Veblen East and West owner Richard Millner, is included in the parties served notice of the motion for sale.

Buyers beware: if you place the winning bid for this 137-acre, three-site mega-dairy, you will assume full responsibility for fulfilling the obligations set forth in an order from the South Dakota Department of Environment and Natural Resources requiring the reduction of manure levels in the dairy lagoons to legal levels. Here's how Trustee Allred's motion explains the situation:

Debtor is subject to an administrative order requiring it to have 270 days of capacity in its lagoons by October 15. Debtor has been pumping manure in accordance with its normal practice. While Debtor expects to comply with the administrative order, the Trustee cannot and does not guarantee Debtor will achieve compliance, and there is risk of non-compliance. Failure of Debtor to meet this deadline could result in significant curtailment, or even cessation, of Debtor’s normal operating activities. The successful bidder shall be fully responsible and liable for all work, equipment, costs and expenses, including manure removal, required to fully comply with the Compliance Agreement captioned “In re the Matter of Veblen West Dairy, LLP Violating Their General Water Pollution Control Permit for Concentrated Animal Feeding Operations” dated April 1, 2010, as well as any and all other regulatory compliance matters. Prospective buyers may obtain a copy of the Compliance Agreement upon request from the Trustee. The successful bidder assumes, at closing, all responsibility and will be liable for all environmental issues related to the dairy [emphasis mine; Forrest C. Allred, Motion to Sell Free and Clear of Liens by In-Court Auction, In Re: Veblen West Dairy LLP, United States Bankruptcy Court, District of South Dakota, Case 10-10071, Document 392, 2010.09.27].

In other words, if you buy Veblen West on October 8, you have seven days to measure just how much crap Rick Millner has saddled you with and get rid of it, on your dime, over and above the price you pay (minimum bid: $8.7 million) to acquire this operation.

To double your exciting market uncertainty, you also don't find out how many cows you're buying until after the auction. The motion says the Debtor owns 3700 head of cattle, but they constantly move from dairy to dairy, and there's no way to set a firm number before the auction. (Sounds like a convenient way to hide assets from bankruptcy court, don't you think?) You at least get to bid per head (minimum opener: $800), but you don't get a complete inventory until after the sale. You also get to pay for any disease testing on the cattle you buy.

To review: put up $8.7 million, plus $800 per head, and you can take possession of Veblen West Dairy, which may or may not be in compliance with environmental rules, may or may not have a feasible number of cattle in its inventory, and may or may not have sick cattle, none of which you'll be able to find out until you assume liability for the operation.

My dairy experience is limited to milk on my Toasty-O's, but am I wrong in concluding that Veblen West sounds like a really, really bad investment?

If you are considering bidding for the Veblen West Dairy, read the DENR order. Read the history of this environmental and financial mess. Then think long and hard about whether you want to put any money into this financially and morally bankrupt operation.
Update 2010.09.30: The impending Veblen West Dairy auction gets a little press from North Dakota television. South Dakota press still AWOL....

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