Monday 19 October 2015 4:03 pm

Dairy Crest share price rises as CMA approves Muller takeover

The Competition and Markets Authority (CMA) has cleared the £80m sale of Dairy Crest's dairy operations to Muller UK.

The sale was referred to the CMA earlier this year over concerns there would be loss of competition to supply fresh liquid milk in the catchment area of Dairy Crest’s Severnside dairy, especially in the South West and Wales.

Muller has agreed to sell the option to local supplier Medina Dairy to require Muller to process up to 100 million litres of milk each year in Dairy Crest’s Severnside dairy for supply to national grocery retailers. The option is for a period of at least five to eight years.

Following this Muller announced it has withdrawn its right not to complete the purchase should there be a deterioration of more than £20m from the agreed level of profitability of Dairy Crest's dairies operations, and Dairy Crest has agreed to make a one-off payment of £15m to Muller on completion, to help meet the additional cost of the modified undertakings.

The CMA said it was satisfied with the undertaking, and would not be instigating a full-scale merger investigation.

Dairy Crest, Britain's largest dairy products company, which owns Cathedral City cheese and Frijj milkshakes, announced it wanted to sell its loss-making liquid milk business to Muller UK & Ireland in November 2014, as it shifts its focus to cheese and spreads.

Mark Allen, chief executive of Dairy Crest, said:

We are delighted that the sale is now confirmed and will complete this year.

This is a transformational moment for Dairy Crest and the wider dairy industry. The deal will help to create a more sustainable UK dairy sector. It will deliver economies of scale and cost efficiencies that will underpin investment in the sector and help the UK to compete more successfully in global markets.

Dairy Crest will now be able to focus on growth, through both our branded cheese and spreads operations and new revenue streams from manufacturing products for the fast-growing global infant formula market.

We will work with Muller to ensure completion is achieved as smoothly as possible.

The sale will complete on 26 December 2015.

Sheldon Mills, CMA senior director of mergers, and decision-maker in this case, said:

The dairy processing industry has faced a number of significant challenges in recent years and we believe that this outcome is good for the dairy industry and the retailers. The remedy addresses in a clear-cut manner the competition concerns we had with the merger in especially the South West and Wales regions.

It results in the accelerated entry of a competitor, Medina Dairy, which has the necessary financial backing, commitment and capability to succeed in serving large national retailers. We consulted extensively and found widespread backing in the industry for this solution.

Resolving this merger investigation now brings real benefits to the dairy industry, including farmers, as it provides certainty and allows the businesses involved and their customers to focus on bringing British dairy products to consumers at a competitive price.

Dairy Crest shares were up four points, 0.66 per cent, in afternoon trading.