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Private equity in pole position to acquire Dairy Crest spreads business - analysts

By Mark Astley , 11-Jun-2012

Dairy Crest's French branded spread business, St Hubert, is attracting a host of potential buyers, according to industry analysts - with private equity firms looking like favourites to complete an acquisition in excess of £300m.

Media reports have suggested that the business, which Dairy Crest purchased in 2007, is likely to fetch around £300m, although DairyReporter.com understands that the figure is likely to be higher – between £325m and £400m.

Private equity firms are set to be prevalent in the first round of bidding, with firms such as Cinven, Montagu and PAI Partners all linked to a takeover of the segment.

Core market reinvestment 

The three St Hubert brand spreads - St Hubert, St Hubert Demi and St Hubert Omega 3 - are manufactured in France for distribution throughout France and Italy – accounting for 36% of the French spreads market and 60% of the Italian market.

When it first acquired St Hubert back in 2007, Dairy Crest's intention was to add to the business segment through a series of acquisitions on the European mainland.

However, the firm has since turns its intentions to selling the segment, with proceeds allocated to paying off debt, which stands at around £300m according to Shore Capital head of research Clive Black.

Dairy Crest are also likely to reinvesting some proceeds in its core market - the UK.

Black told DairyReporter.com that he expects the segment to fetch between £325m and £375m, although he added that “the market will determine the fair price.”

“Dairy Crest was unable to expedite its European strategy. So you could see this as a strategic step back for the company,” said Black.

“The next question is whether Dairy Crest will remain in the liquid milk market. Liquid milk is currently a very high cost, low return business. It remains to be decided whether it will remain in this sector of if there will be further separation.”

Dairy Crest 'concerns'

Concerns have raised about Dairy Crest’s position in the UK dairy sector, with fears that the growing presence of Arla and Muller in the UK market could signal its “demise.”

Arla Foods announced earlier this year that it had entered into an agreement which will see it merge with UK cooperative, Milk Link.

The firm’s dairy business has suffered significantly at the hands of retailer pricing and the increasing UK presence of Muller and Arla, leaving it as only the third biggest liquid milk player.

According to UK mergers and acquisitions expert Julian Wild, the merger raises serious questions as to whether Dairy Crest will be a long term player in the UK market.

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