18 February 2000
Dairy Crest in Unigate merger

By Robert Harris

DAIRY Crest is to merge with Unigates dairy and cheese activities, it was announced today, a move which is likely to put even more pressure on ex-farm prices.

The merger should be completed by May 2000, subject to shareholder approval.

Dairy Crest will issue approximately 75.7 million new shares to Unigate shareholders, and has taken on 100m of debt.

Savings of about 25m within three years are envisaged.

It will also provide for more growth, with further acquisitions planned.

“This merger represents a major step in the consolidation of the UK dairy industry,” said Mike Dowdall, Dairy Crest chairman.

“It will deliver the scale and synergies essential to drive our strategy to position Dairy Crest as the UKs leading added value and branded dairy company.”

Unigate will concentrate on the growing convenience food sector and Wincanton Logistics.

Following completion of the merger, Dairy Crest shareholders will own 60% of the enlarged company, and Unigate shareholders 40%.

Observers suspect farmers will lose out.

Although Dairy Crest still counts about 19,000 producers among its shareholder ranks, any boost in the share value is likely to be offset by more pressure on farm-gate prices, says Roger Metcalf of Agrifood Consultants.

“The merger will put Dairy Crest second only to Express, giving it much greater buying power.

“That means supplier groups – including the new Milk Marque daughter co-ops – will have much less bargaining room when it comes to price discussions,” he says.

“No longer can they play one off against the other.”

The new Dairy Crest is also likely to increase direct supplies, currently about 60%, which will add to supply groups problems.

“There will be a greater trend towards self-sufficiency – Express source 70% direct, and Wiseman almost 100%.”

The merger marks the second big move to rationalise the UK processing sector, following Expresss takeover of Glanbia last summer.

Processors have been squeezed by price pressure from supermarkets and poor returns from commodities like butter, skimmed milk powder and mild cheddar.

In the year ended March 1999, Dairy Crest reported a turnover of almost 774m, and pre-tax profit before exceptionals of 45m.

However, profit growth has slowed recently, and performance is expected to dip below last years levels.

At the end of 1999, Dairy Crest announced it was buying back 10% of its shares, frustrated by the markets inability to sort out bad food companies from the good.

Unigates dairy and cheese arm achieved a similar turnover of 749m in the same period, and an operating profit of 51.5m. It recently bought Wessex Dairies for 1.1m, helping to boost its organic operation.