CMA announced last week it would push ahead with a six month 'phase two' investigation "unless acceptable undertakings are offered" by Müller and Dairy Crest.
Dairy Crest agreed to sell dairy assets, including its fresh milk business, to Müller UK & Ireland for £80m in November 2014. The proposed deal, which has the backing of Dairy Crest shareholders, was passed back to CMA by the European Commission (EC) in March 2015.
An initial CMA assessment found that Müller and Dairy Crest would be the two main suppliers of fresh milk in some areas of the UK.
This, it said, "gives rise to a realistic prospect of a substantial lessening of competition in the supply of fresh milk."
“The CMA is aware of the very significant challenges the UK dairy sector is currently facing,” said Sheldon Mills, senior director of mergers, CMA.
“However, the CMA found that the transaction may nevertheless give rise to competition concerns, since it removes the rivalry between the two main suppliers of fresh milk to major grocery retailers in certain parts of Great Britain.”
“Unless the businesses offer undertakings that resolve the competition concerns, this transaction will face an in-depth investigation to ensure that the merger of two of the largest UK dairy companies will not result in higher prices for national grocery retailers and, ultimately for consumers, for whom milk is an important everyday purchase,” Mills added.
"Expected development"
Given the "scale of the acquisition", a 'phase two' CMA investigation is an "expected development," Müller said in a statement.
"It was our expectation that the CMA might wish to examine our proposed acquisition in detail and we look forward to working with them to supply the information required and to achieving a positive outcome," said Ronald Kers, CEO, Müller Group.
"We always anticipated the sale would be referred to phase two," said Mark Allen, CEO, Dairy Crest. "We remained convinced that this is a great deal for our customers and farmers which will help create a more sustainable UK dairy sector at a time when it faces significant challenges."
"We remain confident of receiving approval at the end of phase two," Allen added.
If given the go-ahead, Müller will acquire Dairy Crest’s fresh milk business, its popular FRijj flavoured milk brand, and its bulk butter, milk powder and bulk and potted cream businesses.
Dairy Crest processing plants in Foston, Chadwell Heath and Severnside, a glass bottling site in Hanworth, and 72 depots would also be absorbed by Müller.