Express Dairies is to merge with Arla UK, the British arm of Scandinavian dairy group Arla Foods, to create a new company which will be one of the leading suppliers of dairy products to the British supermarket groups.
Express will own 51 per cent of the new company, to be called Arla Foods UK and which will be the leading supplier of butter, spreads and margarine to the UK retail trade.
Arla UK is the fourth largest liquid milk supplier in the country, and the sole British distributor of both Arla's Lurpak brand and Anchor, which is owned by Antipodean dairy group Fonterra and distributed by Arla through its AFF joint venture. Express is the biggest supplier of liquid milk in Britain.
As well as having a number of strong brands, Arla Foods UK will also have access to the Swedish R&D and technology facilities of Arla Foods - a company renowned for its innovative products such a 'space age' chocolate. It will also process around 2.4 billion litres of raw milk each year.
But there will also be significant cost savings from merging the two UK businesses, giving the newly-formed company greater financial strength and stability of earnings, Express said.
Commenting on the proposed merger, Sir David Naish, chairman of Express Dairies, said: "Our proposed merger with the UK subsidiary of Europe's largest dairy co-operative will combine two businesses with complementary operations and philosophies. Together we will form a substantially stronger group with a broad product portfolio, strong brands and the necessary management and financial resources to develop our operations for the future benefit of all our stakeholders, including shareholders, milk producers, employees, customers and consumers."
His sentiments were echoed by Jens Bigum, group managing director of Arla Foods in Sweden: "Our focus is centred around customers and consumers. Arla Foods' strategy is based on this approach and entails plans for growth, underpinned by continuous large investments in the group's marketing and manufacturing platform.
"In the UK dairy industry we support the view that further rationalisation is needed in order to meet a challenging future and preferably with dairy farmers and processors getting closer. A combination of Express Dairies and Arla Foods UK as proposed represents a very strong response to the challenges ahead and is in line with our long-term thinking."
Arla Foods recently expanded its cheese operations in the UK with the acquisition of the speciality cheese group HT Webb.