UK: Arla, Milk Link merger to create UK dairy giant

Arla Foods has announced plans to merge with UK dairy farmer co-operative Milk Link in a deal that would create the country's largest dairy group.

If approved, the merger would form an entity with a combined turnover in excess of GBP2bn (US$3.16bn), the firms said today (22 May). The new company would process around 3bn litres of milk per annum, approximately 24% of total UK production.

Arla said the proposal would bring together two "growth orientated" farmer-owned dairy processing businesses with complementary positions in key markets, brands and customer bases.

Arla is currently owned by Swedish, German and Danish farmers and the deal would mark the first time that UK farmers have taken a stake in the co-operative. The proposal is expected to provide the basis for improved returns for Milk Link members and enable them to achieve, after a transitional period, the same level of return as enjoyed by Arla's existing farmer-owners, Arla said.

The merger will also further build on Arla's ambition to invest in and grow the UK dairy market and enter new categories, the company added.

Denmark-based Arla Foods is one of Europe's largest dairy companies. In the UK it currently processes around 2bn litres of milk per year, supplying liquid milk, cream and dairy products to the major retailers.

Arla currently building one of the world's largest fresh milk processing facilities in Aylesbury, also the UK's first zero-carbon dairy. In addition, the co-operative is building a depot in Glasgow as part of plans to grow its business in Scotland.

"The enlarged business will be focused on delivering a sustainable future for our farmer owners," said Arla Foods UK's chief executive Peter Lauritzen. "It will mean that the largest and most progressive dairy business in the UK will be owned by Milk Link and Arla Foods amba farmers, as well as by Arla Foods Milk Partnership members, through their shareholding in Arla Foods UK, via their investment company, MPL."

He added: "Arla has a strong record of investing in facilities and brands in the UK. Together we will be able to offer British retail and foodservice customers with a full range of high quality dairy products from a single, secure, source, making us an even more attractive partner for British retailers. As such, the merger will be good for our farmers, our customers and their consumers and, ultimately, the British dairy industry."

Milk Link's chief executive Neil Kennedy said the proposed merger has been "unanimously endorsed" by the Milk Link board with the "full support" of the Milk Link Member Council.

"We strongly believe that it will create a strong platform for a sustainable future for Milk Link members and the long term growth of a vibrant British dairy industry. Our farmers will benefit from Arla Foods amba's long term strategic vision, global scale, broad product and customer base and proven track record in investing in the development and growth of leading dairy brands."

Milk Link farmers will vote on the proposed merger, which also requires regulatory approval, on 26 June.

The deal will be the second largest in the UK dairy sector this year. In February, German dairy giant Müller declared its takeover bid for Robert Wiseman Dairies "unconditional" after securing almost 94% of the UK milk supplier's shares.

In a seperate announcement today, Arla also revealed that it plans to expand its German business through a merger with the country's eighth largest dairy co-operative, Milch-Union Hocheifel.