Mid-market liquid milk processors Freshways and Medina Dairy have vowed to press on with their integration after the long-awaited merger of the two companies was rubber-stamped by the competition watchdog.
Against the backdrop of significant financial difficulties at Medina, the Competition & Markets Authority published a decision last week that the proposed merger would not lead to “a substantial lessening of competition” across the liquid milk market.
As part of its investigation into the tie-up, the CMA found Medina had been “in financial difficulty since at least 2018”. Its performance had “continued to deteriorate” since this point, “despite significant steps taken by Medina to reduce costs and improve its financial position”.
The situation came to a head during the investigation when a monitoring trustee appointed by the CMA revealed “Medina would be forced to cease trading imminently” if the merger did not proceed, the CMA’s decision paper revealed.
The regulator added that Medina had already undertaken a number of initiatives in collaboration with Freshways in the run-up to the merger’s confirmation last July. These included rationalising its distribution network through depot closures and entering into associated distribution arrangements with Freshways. Freshways also agreed to provide Medina with funding totalling £8m in January 2021.
In concluding its approval of the merger, the CMA found there were “no realistic alternative purchasers for the Medina business or all of its assets that would operate the business or its assets as a competitor, if the merger does not proceed”. The company had “exhausted all realistic means of restructuring itself successfully” it added.
Medina Holdings CEO Sheazad Hussain said he was “pleased” that the two businesses could now “look forward to developing a sustainable and progressive dairy business that will be in the interest of our respective entities, our customers, employees, suppliers and the British dairy farmers that supply us”.
“Both parties will now move forward as quickly as possible with the final necessary steps to bring about the merger, which we envisage will be completed by early summer 2022,” he added.
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Freshways said the combined business would produce in excess of 450 million litres of milk a year from its two production sites, at Acton in London and in Huddersfield. It would be “the UK’s leading liquid milk dairy dedicated to supplying the middle ground and foodservice businesses”, it added.
Further capacity would also be added by the reopening of the Watson’s dairy site owned by Medina at Southampton, which would become “the UK’s first dairy focusing on packaging milk in carbon neutral cartons with tethered caps”.
Both businesses also recognised the need to support their farmers and rebuild confidence in the liquid sector, Freshways said.
The business had already gone some way towards that by leading the rise in prices over the past nine months and becoming the first processor to break through the 40p barrier, it added. “Irrespective of this milestone, it also reflects the systems we now have in place to monitor farmers’ costs and expectations more efficiently and in a more timely way.”
Freshways MD Bali Nijjar said he was “delighted” the merger could now go ahead.
“What started as a conversation between ourselves and Sheazad Hussain in February 2019, and which we announced in July 2021, has finally been concluded,” he added.
“It has been a complex process with numerous challenges in our way, not least with Covid-19. Once we were able to navigate through this painful period and rebuild a robust business plan, we recommenced the merger process, which then got referred to the CMA in August 2021.”
Neither party “had ever been involved in such a process and to say it was a challenging process would be an understatement”, Nijjar said.
“But we are through it now and both businesses have seen their volumes and sales returning to pre-pandemic levels. We now look forward to integrating the two businesses fully and moving forward with our farmers and customers.”
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