The decision of the UK competition authorities to investigate the proposed merger between the UK arm of Denmark's Arla Foods and Express Dairies is likely to have a significant impact on the latter's profits.
Speaking at the company's AGM yesterday, chairman Sir David Naish said that the decision to investigate the merger would delay the implementation of a number of other restructuring measures, in turn reducing profitability.
"We consider it prudent that stand alone plans to address volume and cost issues remain on hold until the regulatory picture is clear," he said. "This delay will therefore continue to restrain our profitability for the next few months.
"The board remains optimistic of a satisfactory outcome to the regulatory process to the benefit of all stakeholders. Pre-merger planning with Arla UK has been encouraging and reinforces further the board's optimism regarding the prospects for the new group."
He added that trading so far this year had been in line with expectations, despite the challenging market background.
Express Dairies announced back in March that it was to merge with the UK arm of Arla Foods, a move which would create the biggest supplier of butter, spreads and margarine to the UK retail trade.
Although the European Commission had the right to rule on the merger - and indeed has cleared the majority of it already - it agreed to derogate the responsibility for approving certain parts of the deal to the UK authorities, following a request from the Office of Fair Trading.
The UK Competition Commission will now rule on whether the two companies will be allowed to pool their operations in the supply of fresh processed milk and the supply of fresh potted cream. There is no indication as yet as to the likely outcome of the investigation, or indeed when it is expected to be completed.