Takeover talks under way for Express Dairies
Takeover talks under way for Express Dairies
By Robert Harris
EXPRESS Dairies, the UKs second-largest raw milk buyer, has confirmed it is in preliminary talks about a possible takeover.
The potential bidder is understood to be Arla Foods, the Scandinavian-owned farmer co-op, which is also the UKs fourth largest ex-farm buyer.
In a statement to the Stock Exchange on Monday, Express said: "The board confirms that Express Dairies has received an approach, and is in preliminary discussions which may or may not lead to a cash offer being made for the company."
Talks were ongoing as farmers weekly went to press.
Although Arla would not comment, Press reports suggest it is preparing a 35p-a-share offer, valuing Express at almost £105m. It would also inherit Expresss £200m of net debt.
A deal would end months of speculation and put Arla – which processes 7bn litres of milk a year creating sales worth k5bn (£3.1bn) mainly in Denmark, Sweden and the UK – a close second to Dairy Crest in terms of UK raw milk purchases.
It buys about 900m litres from farmers here, and a deal with Express would treble that, giving it a 20% share of the raw milk market and a much bigger slice of the supermarket liquid milk trade.
Express Dairies share value crashed from a high of 73.5p a year ago to just 15p recently, after two profit warnings in 2001 and poor first-half results this financial year.
Underlying pre-tax profit tumbled £10m to £13.3m on sales which rose just 1% to £437m. No dividend was paid. The company blamed new capacity in an oversupplied market and declining doorstep deliveries, and is reorganising to reduce debt.
Analysts welcomed the prospect of consolidation in the dairy processing sector, pointing out that the UK has too much processing capacity, and the four big dairies have been slashing margins to win supermarket business.
"They have chased each other around the houses to get milk into supermarkets," said one. "They have dropped about £50m in contributions (in the past year), and Expresss share of that has been about £15m. No one is really making any money – it is not sustainable."
Competition concerns could be a hurdle. The so-called middle-ground market – garages and small shops – seems to be a favourite target, analysts agree, and an Express/Arla marriage would have over 40% of the supermarket liquid milk market. "The Competition Commission has said supermarkets are big enough to look after themselves," was one comment. "But retailers have not had to face this sort of consolidation before." *
Express chief executive, Neil Davidson: Holding talks this week.
Positive reaction from industry
Industry reaction to the talks has been positive. Neil MacFarlane, operations director for co-op Milk Link said: "Rationalisation would lead to lower fixed costs and less on-cost. Anything which takes cost out between the farmer and the end-user, and helps stabilise the market, is fine by me."
The NFU also said a move would fit with its thinking on driving costs out of the dairy industry. "This indicates things are moving in the right direction," said the unions milk and dairy produce adviser, Jenny Searle. "Hopefully, it will materialise."
Expresss main supplier, the Express Milk Partnership, is remaining cautious. Chairman, Jonathan Ovens, said the group, which has about 1200 members, was monitoring proceedings.
"It is all speculation so far, and we certainly are not panicking. If a big group were to come along, we would seek a meeting as soon as possible. We have a three-year contract with Express, and we have proved we are the best route of supply for the companys requirements."
Some of the 130ha of leeks grown across six counties by vegetable specialist Emmett, based in Byfleet, Surrey, were picked for the major multiples this week. The season runs from July to April, and yields are put at 20-25t/ha. "We can make a margin at that – just," says the companys logistics manager, Nick King.