Swedish authorities approve Arla's merger with struggling Milko

By Ben Bouckley

- Last updated on GMT

Related tags: Arla, Milk

Swedish authorities approve Arla's merger with struggling Milko
The Swedish Competition Authority (Konkurrensverket) has approved Arla’s merger with struggling Swedish dairy processor Milko, which had faced bankruptcy in the event of the deal not going through.

Milko revealed in June that it had approached Arla’s board to suggest a merger, due to plummeting membership numbers, low milk prices for farmers and a critical financial situation.

Konkurrensverket approval was the final hurdle, and after the official merger on November 1 Arla will then control Milko’s 5-10 per cent volume share in Swedish raw milk, in addition to its current 60-70 per cent.

An Arla spokesman told DairyReporter.com that the takeover was important for Arla because “every drop of milk is valuable”​ in a Swedish market characterised by tight supplies.

He added that the merger would provide Arla with much-need milk supplies, “important for both us and the market”,​ and allow for the continuation of active milk production in a large part of Sweden.

“There was a risk that if Milko had gone bankrupt, then farmers would have ceased to produce milk,”​ the spokesman said.

Swedish milk slump

Asked about reports of declining demand for milk amongst Swedes​ earlier this year – which seemed odd given a current butter supply shortage​ in Sweden due to a lack of milk – the spokesman said it was important to distinguish between different product categories.

However, he said that “generally speaking”​ milk production in the country had decreased over the past few years (according to Milko the number of dairy cows in Sweden has halved since 1985), but one trend was an increased interest in discount dairy products amongst Swedish consumers.

The Konkurrensverket has imposed 2 conditions on Arla as part of the deal.

Firstly, Arla must sell 5 Milko brands – Bollnäsfil, Tiger, Bärry, Fjällfil and Fjällyoghurt – to a third party within 6 months.

Arla is committed to keeping the Milko product range after the official merger date of November 1, but from this point begin replacing the firm’s brands with its own, with all products packed in Arla packaging from mid-May 2012.

Secondly, the competition authority is also demanding that Arla reduce capacity at Milko’s dairy at Grådö in Dalarna from 120m kg of fresh dairy products a year to 50m kg,

but the spokesman said that the agreement would allow Arla to move this capacity elsewhere within its network.

Integration work begins

As of November 1 the integration of the 2 companies will start, with Milko’s headquarters in Östersund integrated into Arla’s Swedish office in Stockholm.

Milko farmers and employees will become Arla members and employees, and Arla hopes the integration process will be complete by December 31 2012.

Christer Åberg, director of Arla’s Swedish market, said: “The merger will save dairy farmers in the region, but it is important to bear in mind that the main reason for the merger is serious financial difficulties at Milko.

“As we must resolve these in the new organisation, we will not be able to save all the jobs at the dairy,”​ he added.

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