Glenboden M & A Originations

Friesland and Campina to be test case in viability of dairy co-operative mergers

Priority Rating priority rating 3
Print Show Details
Origination Status 'exploratory talks' underway for 'merger of equals' in February 2008
Asset Friesland and Campina (Holland), two largest domestic dairy co-operatives
Buyer farmer- and employee- owners of Friesland and Campina
Buyer Rationale consolidation and growth in international markets
NBs in 2005 Campina failed to agree merger terms with Arla dairy co-operative (Sweden)
lead image

Consolidation pressures in dairy are stronger than ever, after the multiple retailers benefited more from the big price increases in 2007 than the producers wanted them to. At the same time, mergers of dairy co-operatives are very problematic; there's the fundamental obstacle of agreeing a valuation parity between the two unit holder groups, in a situation where there is no liquidity event. The precedents here are very bad; not only did Campina fail with Arla three years ago, but in early 2008 First Milk and Milk Link, two leading dairy co-ops in the UK, abandoned their merger negotiations because of disagreements over valuations.

Friesland, with sales revenue of about € 4,5 bln, is bigger than Campina which has turnover of about € 3,5 bln. It is also more sophisticated and transparent as an organization and, as a big semi-products producer also, is better ‘hedged’ against fluctuations in raw milk prices. If these were commercial entities, therefore, you’d expect the former to simply acquire the latter, through a cash offer or a mix of cash and shares in Friesland.

However, it doesn’t work like that with co-operatives, where the only objective of the owners, i.e. the milk suppliers, is to sell as much milk as possible at the highest price that the co-op can afford. The exception can be farmers that are approaching retirement or want to sell out for other reasons; but these are never more than a small minority at any time, and a big co-op will usually be sufficiently well capitalized to pay them off anyway.

So, it’s very easy to end up with a stalemate, where both sides overvalue their entity while undervaluing the other side’s, especially when there’s no urgency anyway; and especially when the fate of management and supervisory board members, who are the ones negotiating the merger, are also in the balance. This is a shame because the rationale for such mergers is so compelling, right across the board from synergies to R&D to marketing to bargaining power with customers.

Get more information

JOIN OUR E-MAILING LIST and get the latest M&A leads sent directly to your inbox. Join Now!

val table graphic

GLENBODEN originations are supported by key valuation data to further stimulate and inform your research.

View Valuation Guide

Successful Originations

GLENBODEN has accurately predicted a growing number of subsequently completed M&A transactions.

View Successful Originations