The company said the deal will more than double current annual turnover at its dairy operations, from RM600 million to more than RM1.5 billion, and give it significant economies of scale to reduce the impact of high raw material costs. For Nestle the sale of its milk business is a further step in its strategy to focus only on higher value-added products. Many of the products being sold or licensed to F&N are lower end, canned evaporated or condensed milks. However F&N sees opportunity to consolidate its current position in this segment. "We are the market leader in dairy in Malaysia so this allows us to consolidate our position and make us the dominant player in canned milk," Hui Choonkit, manager of the firm's investor relations team, told AP-Foodtechnology.com. Canned milk is still seen as a staple in many Asian markets where chilled products are an emerging category. F&N will also take over Nestle's canned milk brand in Thailand, as well as the smaller UHT, and chilled dairy and juice business. Nestle will in addition license its Carnation, Milkmaid and Bear milk brands to F&N and sell its production facilities and equipment in Thailand to the Asian company. For Malaysia, Singapore and Brunei, Nestle will transfer its Tea Pot milk brand to F&N, who will also be licensed to manufacture and distribute Nestle's Ideal, Carnation and Milkmaid brands in these markets. "In one stroke, we have gained access to a large population base and reduced our dependence on the relatively small Malaysian market, which augurs well for the future of F&N," said Tan Ang Meng, F&N Holdings chief executive, in a statement yesterday. The Thailand business also gives F&N access to the "relatively untapped markets of Indochina and Myanmar with a combined population of 150 million", said Meng, providing a future source of growth for the brands. Dairy products currently make up only 10 per cent of F&N's turnover or S$406 million during 2005, growth of 7.6 per cent over the prior year. "We've been trying to grow revenue by going into new markets like Vietnam and China," explained Choonkit. The firm has minority stakes in Vietnam's largest player Vinamilk as well as the China Dairy Group based in Xi'an, China. Nestle will also divest its 25 per cent stake in its manufacturing subsidiary, Premier Milk, to F&N. However, F&N will retain Nestle's distribution services in Malaysia and Singapore for three years to avoid disruption to the market. F&N said the deal is expected to be funded internally and from bank borrowings. It will take effect from 1 February 2007.