Owned by 7,200 farmers in Denmark and Sweden, Arla is the seventh largest dairy company in the world, with a 6.5 per cent share of the European market. And Hansa-Milch is a smaller German co-op with around 1000 members and 400 employees.
Arla said a merger with the smaller company, which is subject to approval from farmer members of both dairies, would help it establish a greater presence in the German market.
The Scandinavian dairy is already known in Germany for its specialty cheeses such as Arla Buko, Castello and Arla Höhlenkäse and the butters Arla Kærgården and Lurpak.
A more attractive partner
But combining with Hansa-Milch would enable Arla to widen its portfolio in the country further to include other fresh dairy products including milk, cream and quark. This, Arla claims, will improve its negotiating position with retailers.
“Together with Hansa-Milch, we would be able to offer a complete portfolio of dairy products from one single supplier, which will enable us to become an even more attractive partner to the German retail trade,” said Arla CEO Peder Tuborgh, CEO.
Arla may already be one of the biggest dairy processors in Europe but it still considers that expansion is necessary if it is to be in a position to offer the maximum price possible to its farmers.
In a statement, the company said: “Arla needs to grow its business further within Europe, and particularly in the important German market. Arla would be able to expand its presence in Germany through a merger with Hansa-Milch.”
A decision on whether to go ahead with the tie-up will be taken by the member farmers, who will take a vote on the matter in February-March next year.
M&A activity has returned to the table in 2010 after the market volatility and financial crisis put consolidation plans on hold last year. Ebro Puleva sold off its dairy business to Lactalis earlier in the year, PAI Partners is putting its stake in Yoplait up for sale, and PepsiCo has just bought Wim-Bill-Dann.