Glenboden M & A Originations

Is Mueller planning to acquire Dairy Crest ?

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Origination Status shareholding accumulation, September 2010
Asset Dairy Crest Group plc (UK), largest domestic dairy processor
Buyer Unternehmensgruppe Theo Müller GmbH & Co. KG (Germany), largest domestic private dairy group
Seller shareholders of Dairy Crest
Buyer Rationale critical mass in leading international market
Seller Rationale acceptable valuation
NBs in September 2010 Theo Mueller increased its stake in Dairy Crest to above 3%
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On the face of it, the idea that the Mueller Group would acquire Dairy Crest is absurd. Mueller has been focused on yoghurts in the UK market for 20 years. However in its domestic market Mueller is just as diversified as Dairy Crest, and even bigger. So why not replicate that in the UK, the group's no.2 market ?

Leading dairy player in the UK ... Dairy Crest is the largest diversified dairy group in the UK market (see chart). Its portfolio includes 'Clover', the no.1 in dairy spreads; 'Cathedral City', the no.1 in branded cheddar cheese; 'Frijj', the no.1 in fresh flavoured milk drinks.

It emerged in September 2010 that Theo Mueller, the holding company behind Muller dairy, has increased its shareholding in the publicly -listed Dairy Crest to above 3%, the level which triggers an announcement to the London Stock Exchange.

But why would Mueller, whose presence in the UK market, since the early 1990s, has been focused on yoghurts and chilled desserts, where it holds a market share of around 35% through its own brand, be interested in the diversified traditional dairy business of Dairy Crest ?

... Mueller a parallel business in Germany ...The view from the UK, that Mueller is a specialised yoghurt company, focused only on its own brand, is misguided. Mueller could be described, in fact, as a parallel business to Dairy Crest.

Mueller is the largest private dairy group in Germany. It processes more than 1,6 bln litres of raw milk p.a., generating sales of about € 2,3 bln. It's just as diversified as Dairy Crest, making staples like retail milk, cheese and spreads.

Its four main facilities include Leppersdorf, acquired after the collapse of the giant Sudmilk dairy co-operative in the early 2000s. So, Mueller is by no means a specialised dairy 'snacks' producer like e.g. Danone.

... internationally weighted in the UKThe UK is Mueller's largest foreign market, generating about 25% of total sales. It took the UK yoghurt category by storm in the early 1990s, with its innovative pouched jams, at a time when that market was sleepy and worried about hazelnut paste botulism.

It could make strategic sense for Mueller to seek to gain a diversified market position in the UK. Especially when its efforts to expand in other international markets, like Poland, Romania and Holland, have been so challenging.

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THIS LEAD'S VALUATION
Size (€ mln) 2.200
Sector dairy products
Asset Quality UK no.1 branded
Seller large plc
Buyer private corporate
P/S 1,2
P/Ebitda 12,0
Type value estimate
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