Northern Foods ponders dairy operations demerger

Northern Foods is considering the demerger of its dairy operations in a move that could trigger further consolidation in Britain's declining doorstep delivery milk business. Analysts said the decision could be the final push for shareholder value by Christopher Haskins, Northern's chairman, who is due to retire in two years' time and could even spark a bid for the company.

Northern Foods said the de-merger of its dairy business had been under consideration for some time and was "currently at an advanced stage". The company said it had made the announcement following the recent rise in its share price.

Northern Foods has long said the UK dairy industry is in need of consolidation as the doorstep delivery business is in long-term decline and the supply of milk to supermarkets is a cut-throat operation with low margins.

Analysts said Northern's dairy business could be worth pounds 400-pounds 500m as a separate publicly quoted company. The division made profits of pounds 44.8m on sales of pounds 789m last year and is expected to improve profits to pounds 60m this year. The company has re-structured the business, closing bottling plants and reducing capacity.

"I think it is puzzling given we have not seen any public debate about this," said Mark Duffy at SBC Warburg Dillon Reed. "It is difficult to see what is driving the demerger argument."

It is possible that rival dairy groups may bid for Northern's dairy division ahead of de-merger. Some industry experts said a demerger could represent a "turning point" for Northern and for Mr Haskins, who has been at the company for 35 years.

Northern Foods shares closed 8p higher 288p.

- Nigel Cope

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