Blog: Dean BestThe element of surprise in fresh UK dairy consolidation

Dean Best | 22 May 2012

That there was another piece of consolidation in the UK dairy sector was not in itself a surprise but the identity of the participants in the latest deal, announced this morning (22 May) may have raised a few eyebrows.

Arla Foods, the Danish-Swedish dairy group with already significant operations in the UK, and local dairy co-op Milk Link today announced plans to merge in a deal that would create the largest dairy processor in the UK.

The transaction follows the takeover of UK milk firm Robert Wiseman Dairies by German yoghurt maker Muller and industry watchers had predicted there would be further deals in what is a fiercely competitive sector.

Milk is often used as a loss-leader by supermarkets to bring in customers and, with retailers competing fiercely, processors often face demands on price that put pressure on profits.

Of course, the enlarged company will have increased scale that it hopes can act as a counter to the power of their retail customers. It will also operate in categories including butter and cheese, as well as supply dairy ingredients to food manufacturers, giving, perhaps some shelter from the challenges of liquid milk.

That said, that Milk Link has struck a deal with Arla Foods draws a line under the ongoing speculation that, one day, it may end up merging with fellow UK co-op First Milk.

Back in the autumn of 2007, First Milk and Milk Link announced talks over a merger to create a business with scale that could compete on the international stage. Four months later, the talks were off following disagreement on a number of issues, including how much the respective businesses were worth.

Those in the industry often wondered if the two co-ops could return to the table, especially as dairy companies in Europe (Friesland Foods and Campina, Arla and a number of dairies) combined. However, almost a year ago in an interview with just-food, Milk Link chief executive Neil Kennedy hinted that there was nothing in the pipeline.

"We said at the time when we broke off 'never say never'," Kennedy said. "I suppose I'd stand by that but I wouldn't like to give you any suggestion that there is anything active, let's put it that way."

In the end, it is Arla with which Milk Link has joined forces, forming a company with a turnover of over GBP2bn (US$3.16bn).

Click here for more details on the transaction. Tomorrow, just-food will publish an interview with Kennedy and Peter Lauritzen, chief of Arla's UK business on the deal. Next week, we will also take a detailed look at the UK liquid milk sector in our latest category crunch column.


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