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Müller’s acquisition of Dairy Crest’s milk business has taken an important step towards regulatory clearance, with the competition regulator today announcing it has “agreed in principle” to undertakings offered by Müller.

Müller UK & Ireland has offered processing capacity at two sites serving the South West of England and South Wales (understood to be Dairy Crest’s Severnside and Müller Wiseman’s Bridgewater processing plants) to a third party dairy processor, in a bid to allay CMA fears that the proposed £80m deal would lead to “a substantial lessening of competition”.

The CMA said today (26 June), it had reasonable grounds for believing that Müller’s proposed concessions, or a modified version of them, might be an acceptable alternative to an in-depth ‘phase two’ investigation into the deal.

The regulator warned on 12 June that Müller would have to offer “acceptable undertakings” to ensure the purchase of the loss-making Dairy Crest operation would not affect competition in supplying fresh milk to retailers in some parts of the country.

It said the deal “may lead to higher prices in the supply of fresh milk to national multiples and, in turn, for consumers”, adding that the “constraint provided by other dairy processors may not be sufficient to mitigate the competition concerns arising from the merger”.

Müller did not elaborate today on how its proposals might work in practice, but the CMA said the dairy giant had offered “to process for supply a certain volume of fresh milk to a third party dairy processor”.

This would enable another processor to compete to supply milk to the mults in the South West and South Wales, the regulator said in a statement.

That processor would then be able to compete for supermarket tenders for own-label milk in the South West, Wales, the South and the Midlands, added Müller.

“Under the proposed undertakings, the CMA would need to approve both the terms of supply to the third party (including the price mechanism for the milk) and the suitability of the specific third party as a credible competitor,” it said.

“We strongly believe this transaction will unlock real benefits for customers, consumers and farmers,” added Müller Group CEO Ronald Kers. “We are pleased that the CMA has responded promptly to our proposals which aim to fully address the concerns which they expressed and look forward to a positive outcome.”

Dairy Crest CEO Mark Allen said: “We have always believed the sale of our dairies operations is good news for the whole UK dairy sector at a time when it faces significant challenges.”

Potential candidates

Müller will now need to identify suitable dairy processors interested in entering into a processing arrangement with it and propose a named processor and draft arrangement to the CMA for approval.

Potential candidates that could take on Müller’s capacity could include mid-market specialists such as Freshways and Medina or regional processors such as Cornwall’s Trewithen Dairy.

The CMA will now embark on a national consultation, including with retailers and other dairy processors, in order to assess if the proposed undertakings are sufficient to address competition concerns. It has until 21 August 2015 to decide whether to accept the proposals or a modified version of them.