Dairy Crest is to sell its dairies division – including the Frijj brand – to German giant Müller for GBP80m (US$127.8m).
The deal, if approved by competition authorities, will see Dairy Crest offload an under-pressure business and focus on its cheese, butter and spreads operations, which include the Cathedral City and Country Life brands.
Chief executive Mark Allen said that focus, plus Dairy Crest’s recent moves into whey production, would provide value to shareholders.
“The disposal will allow Dairy Crest to focus on continuing to grow our successful and innovative branded cheese and spreads operations. We will also deliver additional added value sales through our whey investment. We are confident that this focus will deliver further medium term profit growth for our shareholders,” he said.
Müller’s expansion in the UK liquid milk market comes two years after the privately-owned group bought local supplier Robert Wiseman Dairies.
As well as owning the Frijj brand, Dairy Crest’s dairies assets process and deliver around 1.3bn litres of milk per annum to major retailers, ”middle ground’ customers – including smaller retailers, coffee shops and hospital – and residential customers. In the year ended 31 March, the operations recorded revenue of GBP944.8m and product group profits of GBP600,000, excluding earnings from selling surplus properties, which stood at GBP18.2m.
Müller will acquire factories at Foston, Chadwell Heath and Severnside. It also includes the Hanworth glass bottling site, where Dairy Crest is consulting with employees on the site’s future, and 72 depots.
Alongside news of the proposed sale, Dairy Crest announced its half-year results, which included a GBP4.4m operating loss from the dairies arm in the six months to 30 September. Excluding proceeds from property disposals, the division’s operating loss was GBP12m.
However, Dairy Crest insisted combining the dairies unit with Müller Wiseman Dairies – the German group’s UK business – will “create a more sustainable UK dairy sector by delivering economies of scale and cost efficiencies that will underpin investment in the industry”.
“Completing this transaction would be a positive development for Dairy Crest and for the UK dairy industry. The combination of our dairies operations with those of Müller Wiseman Dairies will create efficiencies and economies of scale that will help to create a more sustainable UK dairy sector that is better placed to compete on the global stage,” Allen said.
Ronald Kers, chief executive of Muller’s operations in the UK and Ireland, added: “We are concerned that the dynamics of the UK fresh milk market are unsustainable for dairy processors in the mid to long term and this acquisition will allow us to reduce our costs, increase our efficiencies and invest in the future.”