The authorities in the UK have given the green light to merger of two of the country's biggest liquid milk suppliers after an investigation showed little risk of the deal damaging competition.
The approval, announced yesterday by competition minister Gerry Sutcliffe, will allow Arla Foods - the UK arm of the Swedish dairy group - and Express Dairies to finally complete their proposed merger. Express has already reported sales figures impacted by the delay to the merger.
The UK authorities took the unusual move of seeking leave to investigate the merger even though it would normally be the job of the European competition authorities in Brussels to give it the go-ahead.
The European Commission in fact gave the green light to the majority of the deal, but agreed that London was best placed to decide whether the merger would impact the markets for the supply of fresh processed milk and the supply of fresh potted cream in the UK.
The Competition Commission (CC) was concerned about the impact the deal would have on the liquid milk supply market, in particular for middle ground customers, including retailers other than the national multiples, public sector bodies, catering customers, bottled milk buyers and other wholesalers.
But the CC's investigation found that there was likely to be a significant number of alternative suppliers to exert competitive constraints on the merged company in this 'middle ground'.
At the same time, the CC also found that while the deal would lead to a lessening of competition in the market for supplying liquid milk to the major national supermarket chains - just three companies will now supply 100 per cent of the retailers' requirements - without the merger, Express's competitive position would actually weaken.
In addition, continuing overcapacity in the industry which would give the national multiples flexibility to switch their supplies between processors, while the buying power of the major supermarket chains would make it hard for any supplier to abuse a dominant position by increasing prices - if anything, the milk suppliers will have to reduce prices to satisfy the margin demands of the store owners.
Arla has stressed the importance of strengthening its position outside its home Scandinavian market in order to compete more successfully, and the creation of Arla Foods UK through the merger will certainly leave it in a strong position in an important market.
Together, Arla Foods and Express Dairies will have a combined turnover of around DK15 billion (€2bn) per year, process 2.3 billion litres of milk per year and employ a workforce of 7,000. Among the key brands offered by the group will be Lurpak and Anchor.
Sir David Naish, chairman of Express Dairies, said that the new company would be "substantially stronger with the financial resources to further develop our business to the benefit of all our stakeholders".
Jens Bigum, Arla CEO, added that the company would have considerable expertise in manufacturing, R&D and marketing which would be put to good use to grow the business in the UK.