Dairy Crest yesterday emerged victorious in the bidding battle for Unigate's milk and cheese business, after Scottish rival Robert Wiseman pulled out.
Wiseman said it could not match Dairy Crest's improved £250m cash bid, made at the end of last week. Wiseman's best offer had been £240m, while Dairy Crest started the bidding in February at £225m in shares.
Dairy Crest said it would now be the biggest dairy company in the UK, and that it would move from number five to number two position in the fresh milk market, after Express Dairies.
Ian Laurie, Dairy Crest's finance director, said it could afford to pay more than Wiseman because it could extract bigger synergies, put at £25m, due to much greater geographical and product overlap. "£25m a year in savings is worth rather more than paying £25m more than our original offer for this business," he said. The Unigate diary business is expect to report pre-tax profit of £40m for the year to 31 March 2000.
Gerry Sweeney, financial controller at Wiseman, said: "We'll go back to plan A - organic growth. Our interest in the Unigate arm had been opportunistic. They had to get this, we didn't. We'd have had to come back with about £260m, and we started to question the logic of that." Analysts said that Dairy Crest was losing supermarket milk business and it either had to get bigger or exit the market.
Wiseman will open the UK's biggest dairy, just south of Birmingham, next spring, which can add up to 50 per cent to its milk output. It will use the facility to attack the market in the South of England, where it is weak.
Analysts said that if Wiseman, which has about 13 per cent of the fresh milk market, still wanted to grow by acquisition, it would now have to turn to MD Foods, a Danish co-operative with 11 per cent market share.
Unigate-Dairy Crest will have about 24 per cent of the market, which is led by Express Dairies at 30 per cent.
Wiseman will collect a £2.4m break fee, as Unigate had agreed to the £240m offer before Dairy Crest bettered it. This will cover its costs.