Express Dairies shares turn sour on OFT price-fixing investigation

Express Dairies shares dipped yesterday on news that the Office of Fair Trading has launched a price-fixing investigation into three dairy groups. The companies involved are Express Dairies, the Co-operative Group and Arla Foods, the Danish company whose merger with Express has already been referred to the Competition Commission this month.

Some analysts voiced concern that the OFT investigation might be linked to the Express Dairies-Arla merger. However, it is understood the two inquiries are not related.

Express Dairies' site in Liverpool was raided some weeks ago by OFT officials while a visit was also paid to the Co-op's milk depot in Blaydon in the north east. Express shares fell 1.25p to 35.25p.

The investigation is thought to focus on the so-called "middle ground" of the milk market which includes all customers who are not major supermarkets and not doorstep delivery customers. This group mainly consists of corner shops and other convenience stores.

It is highly unlikely that the investigation could include the supply of milk to the major supermarkets as this is done at rock bottom prices from which the dairy companies make barely any profit.

The doorstep delivery market could be included as it operates on a regional basis with most areas being covered by a monopoly dairy provider. Prices for milk delivered to the doorstep are around 50 per cent higher than typical supermarket prices.

Express Dairies denied any involvement in price fixing. Neil Davidson, the chief executive, said: "We do not collude with competitors. We have no case to answer and we do not know how we fit into this."

The Co-op also issued a denial as did Arla Foods. All parties said they were co-operating with the investigation. The Competition Commission is due to report on the Express-Arla merger by 24 September. The competition minister, Gerry Sutcliffe said earlier this month that he had been advised by the OFT that a merger would lead to a substantial lessening of competition. The number of major dairy groups would fall from four to three nationally and from three to two in some regions, he said.