As expected, the UK's Dairy Crest group has confirmed that it has made an offer to buy the St Ivel spreads business from the Uniq group. The company said it would pay £86.5 million (€137.4m) for the business.
The St Ivel spreads business comprises Utterly Butterly, St Ivel Gold, Vitalite and Carapelli and a well invested manufacturing facility in Liverpool. Dairy Crest already produces the Clover, Cathedral City, Frijj and Yoplait brands.
The St Ivel spreads business posted sales of £75.2 million in the year to March, and is the second largest manufacturer and marketer of branded yellow fat spreads by market share in the UK.
The agreement also includes the exclusive licence for the use of the St Ivel brand in perpetuity for use across juice and all dairy categories, excluding yoghurts, dairy desserts and cottage cheese. The St Ivel yoghurt and dairy dessert business was acquired earlier this year by the French group Danone.
Dairy Crest said that the acquisition was consistent with its strategy of building the branded and added value elements of its business and that it would allow it to further consolidate its position as the UK's leading supplier of added value and branded chilled dairy foods.
Drummond Hall, Dairy Crest's chief executive, said: "The acquisition of St Ivel spreads provides Dairy Crest with an attractive position within the spreads and butter market and reinforces our successful strategy of adding value and building brands across the chilled dairy foods market. The acquisition is expected to provide returns in excess of Dairy Crest's cost of capital and we believe it will underpin Dairy Crest's ability to continue to deliver attractive growth in shareholder value."
For its part, Uniq said the disposal, which has been on the cards for some time, would improve its strategic focus on the growing European chilled convenience foods sector, as well as significantly enhancing its financial position by reducing debts to well below £100 million.
Bill Ronald, Uniq's chief executive, said: "Last week Uniq issued a trading update which indicated that good progress was being made in improving our business performance and in growing our sales and profits. Now, with the announcement of the St Ivel spreads disposal, we will be able to complete the strategic re-focusing of the business more quickly than we had expected and on a basis which is earnings neutral.
"When this transaction is completed, our net debt will be significantly below the £100 million target which we set in June, providing us with the financial flexibility and focus for the single-minded development of our core chilled convenience foods business. In view of the positive developments thus far this year, we look to the future with confidence."
The St Ivel spreads will be integrated into Dairy Crest's existing spreads and butter business, which continues to achieve good growth. As a result of the acquisition, the company said it would become the market leader by volume in the growing 'taste' sector of the spreads and butter market with the addition of the strong Utterly Butterly brand to Clover and Country Life butter. It will also become the number two player in the health sector with the addition of the St Ivel Gold in low fat, Vitalite in sunflower and Carapelli in the olive oil sector.
The taste sector accounts for 63 per cent of the market by value and has grown by 5 per cent over the last year. The health sector accounts for 33 per cent of the market by value and has been essentially flat over the last year. The remaining 4 per cent of the market is accounted for by cooking fats.
The company said it would also allow it to create a strong portfolio of brands across all key sectors of the spreads and butter market, and that it would consequently increase the levels of marketing support to drive growth in the acquired brands, some of which have been in decline.
The integration of the acquired brands will also allow it to achieve cost savings which would in turn be ploughed back into brand development. The company also stressed the importance of the St Ivel brand - one which is already well known in the UK market - which it planned to develop further with the addition of a range of added value products.
Dairy Crest said the acquisition was conditional on clearance being received from the Office of Fair Trading, and that it expected the transaction to be completed around mid November.
In a separate move, Dairy Crest's finance director Ian Laurie also provided an update on the company's current trading performance. He said that all the group's brands had shown good volume growth and had increased market share in the period since the last figures were published in March.
He added that operating profits for the year as a whole were likely to be slightly below the level seen in 2001 as a result of lower prices for commodity cheese due to higher-than-expected milk output in the UK.