The potential deal between Arla and Hansa-Milch marks the end of an evolving year on the M&A front in the food sector

The potential deal between Arla and Hansa-Milch marks the end of an evolving year on the M&A front in the food sector

The consolidation seen in Europe's dairy sector in 2010 was marked with a final flourish in the last weeks of the year on Friday (17 December) with Arla Foods' announcement that it plans to merge with Germany co-op Hansa-Milch.

The proposed deal, which is set to go to a vote among the farmer-shareholders of both companies by the end of March, could see Arla and Hansa-Milch create a stronger business in Germany, one of Europe's key dairy markets in terms of production and consumption but also one that needs consolidation in the face of powerful retailers. And, with German co-ops Nordmilch and Humana Milchindustrie set to merge next year, Arla (which exports to Germany but has no direct presence in the market) and Hansa-Milch no doubt feel the need to be at the forefront of that consolidation.

The deal has also been drawn up within the context of the wider EU dairy market. 2010 has seen mergers (or proposed mergers) in France and Austria as dairies look to build scale both for domestic reasons and to strengthen their operations ahead of 2015, when the EU ends its dairy quotas. In five years time, the milk market will be less regulated, production is likely to rise and any surpluses will put pressure on prices. The stronger the company, the greater its scale, the more likely it is to withstand what Rabobank dairy analyst Marc Voorbergen described last week as market "turbulence".

The potential deal between Arla and Hansa-Milch also marked the end of an evolving year on the M&A front in the food sector. At the start of the year, the only (possible) major takeover in town was Kraft Foods' pursuit of Cadbury. When Kraft finally got its man, some said the GBP11.5bn takeover would spark a raft of similar deals in the industry. In reality, such predictions proved way off the mark, although as the year progressed, there were signs of a revived appetite for deals across the industry.

Today, in our latest just-food management briefing, we look back at this year's M&A in the food manufacturing and retail sectors, describing what has driven this year's key deals - from the sales of Del Monte Foods and Wimm-Bill-Dann to Casino and Wal-Mart's moves in retail's emerging markets - and look ahead to what could happen next year. Of course, Wal-Mart's announcement last week that it will close its office in Moscow after two years at looking at ways to enter Russia grabbed the headlines and, although the world's largest retailer has refused to rule out a move in the future, it appears that, for now, the business has run out of suitable targets.

One target at the top of some food multinationals' lists is Yoplait and today the auction of PAI Partners' stake in the global yoghurt brand is said to get formally under way. The likes of Nestle, General Mills and PepsiCo are said to be interested in Yoplait, as well as China's Bright Food and Mengniu Dairy, and let's not forget Lactalis, which last month had a bid for the whole business turned down. The battle for Yoplait (which last week snapped up Canadian organic yoghurt brand Liberté) is likely to be one of next year's most fascinating takeover tussles.

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