Dalgety eyes BP pet foods

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DALGETY, the Spillers to Golden Wonder food group, is in talks to buy British Petroleum's European pet food business in a move that would give a fillip to its ambitions to expand on the Continent, writes Heather Connon.

Paragon Petfoods, part of BP Nutrition, manufactures branded and own-label pet foods in Britain, the Netherlands, France and Germany.

Its turnover is about pounds 103m and, although neither Dalgety nor BP would reveal its profits, its margins are believed to be well below the 10 per cent that analysts think Dalgety's Spillers business achieves.

No price for the deal was given, but analysts estimate that Dalgety will have to pay between pounds 40m and pounds 50m. Its borrowings at 30 June were pounds 49m, or 12 per cent of net assets, and the deal will be funded from its own resources.

Spillers' sales in the year to June were pounds 225m, but only 20 per cent of that was in Europe. Paragon, in contrast, makes 60 per cent of its sales on the Continent. It also sells mainly through pet shops, complementing Spillers' business with retail grocers.

Dalgety has been keen to expand its pet food and snacks businesses in Europe, but acquisitions are difficult to find. Richard Clothier, chief executive, said it had been aware of Paragon for some time but BP only recently put it up for sale as part of its programme of withdrawing from the nutrition business.

The Paragon sale is expected to be completed by the end of December, which will leave BP with only a few fish and prawn farms in its nutrition division to sell. Earlier this year it sold its businesses producing consumer foods and consumer products, such as detergents.

Like Spillers, Paragon mainly manufactures dried pet foods, which are more popular than cans in Europe. Analysts expect Dalgety to make cost savings by integrating production facilities.

Dalgety's shares closed 9p higher at 448p while BP rose 2p to 343.5p.