The bosses of Dairy Crest and Müller have insisted their £80m deal - which will see Müller buy Dairy Crest’s dairies business - will not be derailed by competition concerns.
The sale will result in major consolidation in the UK’s fresh milk sector, with Müller UK & Ireland also set to acquire Dairy Crest’s Frijj brand as well as its bulk butter and milk powder assets, among others.
There has been speculation about further dairy processor consolidation ever since Müller acquired Robert Wiseman Dairies in 2012, but competition law restrictions had until now been considered a major barrier.
However, Dairy Crest CEO Mark Allen and Müller UK & Ireland CEO Ronald Kers said they were confident the deal would be passed.
“We have taken advice from a legal and economic point of view, and believe we have really good grounds for this deal to be approved,” Allen told The Grocer. “Müller will still be smaller than Arla, and there are more than 20 other processors in the market, so there is still a lot of choice for customers in the UK.”
Meanwhile, Kers said the enlarged Müller would still represent “less than 25% of the UK’s total milk pool.”
He added consolidation was needed because the UK milk sector was facing “extreme challenges” and was “unsustainable” at present. “This deal will allow it to become more competitive and we believe the Competition and Markets Authority will see this.”
A spokesman for the CMA declined to comment whether the regulator planned to launch an inquiry into the deal.
But experts agreed the deal was unlikely to face competition barriers. Although its size was “bound to raise competition issues with either the CMA or the European Commission,” both parties could argue it would not have a significant effect on competition due to the struggling dairy market and downward pressure on competition, said Richard Eccles, a partner at Bird & Bird.
One dairy expert argued there was unlikely to be a competition case given how tight processor margins were. “Processors’ margins are on the floor so there doesn’t seem to be a case that processors are making excess profits.”
With Dairy Crest’s interim results stating it made just a £600,000 profit through its dairies business last year, City analysts welcomed the sale. Shore Capital’s Clive Black and Alex Howson of Jefferies International both issued a ‘buy’ recommendation, while Dairy Crest’s share price climbed more than 12% in early trading to 473.25p.