Müller's bid to buy Dairy Crest's liquid milk business has been approved by UK competition officials, the companies announced today (19 October).

The UK's Competition and Markets Authority gave the all-clear to the deal after accepting Müller's concessions on milk supplies.

Müller and Dairy Crest announced their planned transaction last November. However, with the deal set to leave only two major suppliers of liquid milk in the UK – Müller and Arla Foods – the CMA asked the German group to put forward proposals to maintain an acceptable level of competition in the market.

The CMA had concerns about the supply of fresh liquid milk near Dairy Crest’s Severnside dairy, especially in the south west of England and in Wales. Müller has agreed to arrangements that will lead to the expansion of an existing supplier to serve national grocery retailers with fresh liquid milk in the area.

It has struck a deal to supply Medina Dairy with up to 100 million litres of milk each year in Dairy Crest’s Severnside dairy for supply to the retailers. The option is for a period of at least five years and up to eight.

Sheldon Mills, senior director of mergers at the CMA, said: "The dairy processing industry has faced a number of significant challenges in recent years and we believe that this outcome is good for the dairy industry and the retailers. The remedy addresses in a clear-cut manner the competition concerns we had with the merger in especially the South West and Wales regions. It results in the accelerated entry of a competitor, Medina Dairy, which has the necessary financial backing, commitment and capability to succeed in serving large national retailers."

Müller expects the transaction to go through by 27 December. Ronald Kers, Müller's CEO, said: "There is no question that further consolidation is required in the UK fresh milk sector and with this hurdle now cleared, we have an exciting opportunity to create a more competitive, sustainable, efficient and innovative dairy processor in the UK."

Dairy Crest had been looking to sell its liquid milk business, which had come under pressure, to focus on its cheese, butter and spreads operations, which include the Cathedral City and Country Life brands.

Chief executive Mark Allen called the CMA's decision "a transformational moment for Dairy Crest and the wider dairy industry". Allen said: "Dairy Crest will now be able to focus on growth, through both our branded cheese and spreads operations and new revenue streams from manufacturing products for the fast-growing global infant formula market. The deal will help to create a more sustainable UK dairy sector.  It will deliver economies of scale and cost efficiencies that will underpin investment in the sector and help the UK to compete more successfully in global markets."

Medina Dairy's chief executive, Sheazad Hussain, said the company's agreement with Müller was part of the group's vision to be "a credible alternative supplier of liquid milk to the full spectrum of UK retailers, wholesalers and food service operators".

Hussain added: "The ongoing consolidation and rationalisation of the UK dairy processing sector has resulted in the creation of a small number of very large dairy businesses. We see this as an opportunity that creates space in the marketplace for Medina to leverage its capabilities and experience in the supply of fresh milk and implement its strategy of increasing its presence into the larger UK retail and food service market including the national multiples."