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Penn Traffic Co., the parent company of the Quality Markets supermarket chain, announced Tuesday that it will sell its Sani-Dairy milk unit to the Dean Foods Co. for $37.5 million in cash.

Sani-Dairy, which is based in Johnstown, Pa., supplies about $65 million annually in milk, ice cream and other dairy products to Penn Traffic's Quality, Big Bear and Bi-Lo Foods chains.

Syracuse-based Penn Traffic, which has been struggling to improve the performance of its supermarkets and cut operational expenses, expects to take a pretax gain of $25 million on the sales. Company executives said that shedding the unit immediately will help its earnings.

Penn Traffic plans to use the sale proceeds to reduce its debt.

As part of the deal, the company has signed a 10-year supply agreement with Dean Foods to continue purchasing milk and other dairy products through Sani-Dairy.

The agreement also calls for the food company to order an additional $30 million in dairy goods from two other Dean-owned dairies.

Franklin Park, Ill.-based Dean Foods is the nation's largest dairy processor and distributor. It recently has been in an expansion mode in an effort to expand from its Midwest base, including the November acquisition of Maplehurst Dairy, an Indianapolis operation with $70 million in sales. In October it bought the H. Meyer Dairy in Cincinnati.

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