Unigate set to take second place in UK milk market

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The Independent Online
UNIGATE stands to overhaul Dairy Crest and take second position in the UK liquid milk market following an agreed pounds 50.4m cash bid for Clifford Foods, the Berkshire-based dairies, fruit juice and convenience foods group.

Clifford, controlled by the board and members of the Clifford family, said last Friday that it was in possible bid discussions.

Terms agreed with Unigate - 573p in cash for each ordinary share and 251p for the more widely-held 'A' non-voting shares - were higher than the stock market expected.

Expansion into dairies by Ross Buckland, chief executive, marks a reversal of policy by Unigate. Its former chairman and chief executive, John Clement, sold half its liquid milk business to Dairy Crest, owned by the Milk Marketing Board, four years ago.

Mr Buckland, since joining in October 1990, has sold or closed peripheral businesses in favour of enlarging core activities.

Clifford ordinary shares jumped 50p to 573p and the 'A' shares rose 34p to 253p. Shareholders will be entitled to a 7.1p second interim dividend, equivalent to 9.467p before tax. Before the announcement of bid talks Clifford ordinary shares stood at 420p and the 'A' shares at 184p.

Terms for the non-voting shares in relation to the voting shares are more generous than the minimum laid down by the Takeover Panel, which has given its consent.

Mr Buckland did not expect any difficulties with the Office of Fair Trading over the purchase, which would mark Unigate's reappearance north of the M4 motorway.

The addition of Cliffords and clearance for the pounds 17m deal last month to acquire CWS's milk business in the South-east would increase Unigate's share of the liquid milk market from 12.1 to just over 16 per cent. Northern Foods is market leader with 25 per cent, followed at present by Dairy Crest with 16 per cent.

Mr Buckland said that the acquisition would more than cover financing costs and enhance Unigate's earnings in its first year of ownership. Because of one-off modernisation costs Clifford's pre-tax profits are likely to have fallen from pounds 5.3m in 1991 to between pounds 3.75m and pounds 4m last year, implying a p/e of 19.5. On 1991 earnings the p/e is 14.

Unigate shares rose 15p to 342p on the deal. Sally Jones, food manufacturing analyst with Panmure Gordon, said investors liked to see a self-financing deal which expanded a core area for Unigate.

Cliffords makes doorstep milk deliveries to 170,000 customers from depots in five counties. It has milk processing operations at Bracknell, Berkshire, and Kidlington, north of Oxford.

The company also makes crumb coatings, chilled convenience foods and frozen ready meals. It supplies own-brand fruit juices to supermarkets from Kidlington.

Unigate intends to use the production lines at Kidlington to replace its own fruit juice factory site at Walthamstow, London.