Northern to separate off dairy business

Northern Foods prepared the way for a big consolidation in the UK milk industry yesterday when it confirmed plans to demerge its dairy business and made aggressive comments about takeover activity.

The company said there had been much talk about consolidation but little action beyond the merger between Avonmore Foods and Waterford Foods. Neil Davidson, who will head the Express Dairies business, said: "Part of the reason for making this move its to break the log jam." He said there was scope to make several smaller acquisitions among the independent dairies which still account for 10-12 per cent of the UK dairy market. "The big deal on the right terms would be the icing on the cake."

The demerger, which will take place in March, will be the first time Express Dairies has been an independent quoted company since the 1970s when it was acquired by Grand Metropolitan. It has 20 per cent of the liquid milk market in England and Wales, just ahead of Unigate. MD Foods has 15 per cent, Dairy Crest 13 per cent and Robert Wiseman 10 per cent.

Analysts said a demerged Express Dairies could be valued at around pounds 450m. The remaining Northern Foods operation is expected to be valued at around pounds 800m. It makes Fox's biscuits, Ski yoghurts and Bowyers meat pies as well as chilled desserts and ready-made meals for Marks & Spencer and the large supermarkets.

The demerger will see group chairman Christopher Haskins step back to a non-executive role, chairing both companies. "I've been involved with the business for over 40 years but I have already been reducing my day- to-day involvement and been working with the Government for two days a week. I have no intention of seeking non-executive directorships. They can be quite boring."

Michael Landymore of Henderson Crosthwaite said: "I think it [the demerger] is a good thing. Not least because it resolves the succession question." He said the demerged Express Dairies could be a vehicle for other corporate activity such as a merger with Robert Wiseman Dairies, which has over 80 per cent of the milk market in Scotland.

The shares closed down 4p at 284p.

- Nigel Cope