Arla Food’s proposed merger with UK-based dairy cooperative Milk Link could signal the demise of Dairy Crest, a food sector mergers and acquisitions expert has claimed.
Julian Wild, a corporate finance partner at UK law firm Rollits, told DairyReporter.com that the proposed merger of Arla and Milk Link will raise the question as to whether Dairy Crest will be a long term player in the UK dairy market.
If approved, the Arla merger will create the UK’s largest dairy industry player with combined turnover of more than £2bn and liquid milk production capacity of around 3.2bn litres per year – accounting for around 24% of total UK production.
The proposed merger comes just month after Müller UK’s £279.5m acquisition of Robert Wiseman Dairies – a move that saw one of the UK’s key yogurt players buy a leading liquid milk provider.
According to Wild, these acquisitions signal the start of a continuous battle between Arla and Müller in the UK liquid milk market – leaving little room for Dairy Crest.
“Dairy Crest is having a hard time. This proposed merger raises the question as to whether Dairy Crest will be a long term player in the UK dairy industry,” said Wild.
“Dairy Crest has got a good future in the UK cheese market, but a there is potentially a very big question mark hanging over its liquid milk business.”
“All other players have disappeared. Dairy Crest is now the only quoted UK dairy company. Long term, it raises questions about the company’s long term future.”
It has become increasingly tough for firms in the UK dairy sector to compete without significant investment, said Wild.
“Major retailers have been driving down liquid milk prices. It has become increasingly tough for major players in the UK dairy sector to compete unless they are really well invested in with a strong market position,” added Wild.
“This is the type of position Arla and Müller are looking to build for themselves in the UK liquid milk sector.”
“It is set to become a continuous battle between Arla and Müller in liquid milk.”
Wild’s comments came within hours of Dairy Crest’s results for the year ended 31 March 2012, which detailed “unsatisfactory results” in its liquid milk segment.
The firm’s dairies segment, which includes fresh, organic and flavoured milk products, recorded a 2% drop in revenue.
It reported operating profit for the dairies segment of £10.2m – a significant decrease on the £27.1m recorded in 2011.
Elsewher, Dairy Crest's spreads and cheeses segments recorded increases in operating profit compared with the previous year.
“Dairy Crest’s results for the year demonstrate the continued benefit of being a broadly based business. Double digit growth in our branded spreads and cheeses businesses has offset unsatisfactory results in dairies,” said Dairy Crest CEO Mark Allen.