Firm closing in on £430m takeover of Arla Foods despite pension gap

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The Independent Online

Shares in Arla Foods jumped 7 per cent yesterday, as investors anticipated a £430m takeover of the dairy company by its main shareholder, the Swedish-Danish co-operative Arla Foods Amba.

Arla UK, which makes Lurpak and Anchor butter and Cravendale milk, confirmed it was in advanced discussions with the co-operative - which already owns 51 per cent of the company - over a potential 71p a share offer.

It is expected to agree a deal as early as this week. Shares in Arla UK climbed 4.5p to 68.25p, valuing the company at £418m.

The two parties revealed in October that they were in talks over a deal that would give the Swedish-Danish firm full control over the British operation. Analysts said negotiations faltered on Arla UK's "relatively high pension deficit", which stood at £143m last September.

"This has been a stumbling block as the parent company will have to fund that deficit, but it looks like this issue may have now been resolved," one analyst said. "Given that Amba already own 51 per cent, this is a fairly obvious move. It is a bit of an anomaly for a co-operative to have a UK-listed subsidiary."

"Discussions which may lead to a recommended cash offer at a price of 71p a share are at an advanced stage," the company said in a statement. "There can, however, be no certainty that an offer will be made nor as to the terms of which any offer might be made."

Arla Foods UK was created in 2003 when the Copenhagen-based co-operative merged its UK unit with Express Dairies. The company employs 3,000 staff in the UK and processes around 2.3 billion litres of milk a year at eight dairies. It also makes branded yoghurts based on children's television characters.

Copenhagen-based Arla Amba, which is owned by 10,600 dairy farmers, has been struggling to cut prices in an increasingly competitive market across Europe.

It also saw its sales fall in Arab countries last year after supermarkets boycotted its products because of cartoons of the Prophet Mohamed published in a Danish newspaper, although most supermarkets ended the boycott after Arla condemned and distanced itself from the cartoons.

Arla has estimated that the boycott will cost it at least 400 million kroner (£35m) this year, and it says it has had to fire more than 50 workers.

Last year, it abandoned merger talks with Dutch dairy firm Campina that would have led to a dairy products giant with yearly sales of €10bn over differences in the two co-operatives' capital structures.