Co-Cavan-based Lakeland Dairies has acquired the dairy division of Fane Valley co-op for an undisclosed sum. The deal took effect on May 1st.
This simplified deal structure is considered to be a better option than the originally proposed strategic joint ventures, announced previously in August 2015, which would have involved both the dairy and agri-business interests of the respective businesses.
Trevor Lockhart, Chief Executive of Fane Valley Co-operative commented: “Fane Valley and Lakeland Dairies are absolutely convinced that the interests of their respective milk suppliers will be better served in a combined business which can deliver greater economies of scale and enhanced market capability.
“The option to deliver this through a joint venture model has been the subject of an in depth assessment by both co-operatives working closely together for eight months. In the end, it was evident that some of the complexities involved in establishing and operating a cross-border JV of this nature were going to detract from the key strategic purpose of the merger and the ability to fully realise all commercial synergies. Accordingly, Fane Valley has opted not to take up a shareholding in Lakeland Dairies Co-operative Society as was intended in the original joint venture proposal.
“The principal goal of Fane Valley has been to create a dairy business which is better positioned to deliver maximum returns to milk suppliers in the years ahead. Recognising this, the Board has decided to focus its attention on supporting Lakeland to drive forward the expanded dairy business,” he added.
Fane Valley’s dairy operation is located in Banbridge, Co Down. It generated a turnover of £105m in 2014. This figure would have fallen significantly in the wake of the severe downturn in global dairy markets, witnessed over the past 18 months. The co-op has 230 farmer milk suppliers: all will be given new supply contracts with Lakeland.
Referring further to the new way forward, Mr Lockhart continued: “Our collective priority over the coming months will be to achieve the successful transition and integration of the Fane Valley dairy business within Lakeland Dairies. In view of the importance of this task we have decided that the proposed agribusiness Joint Venture would prove a distraction from the main goal, and that will not be advanced.”
He added: “Fane Valley will continue to develop and invest in its wider agriculture and food related businesses.”
Michael Hanley, Chief Executive of Lakeland Dairies Co-operative stated: “The strategic rationale behind Lakeland Dairies and Fane Valley co-operating to advance the interests of their respective businesses is as strong today as it was in August 2015. It is extremely positive that the Boards of both co-operatives have had the foresight to recognise the limitations of the initially proposed Joint Venture arrangements and the courage to adapt and revise their approach.
“The current market environment is undoubtedly challenging both for producers and processors. However, we have a strong ambition, in Lakeland, to further strengthen our position in global markets as a leading provider of high quality foodservice products and dairy food ingredients.
“The agreement we have reached with our neighbouring co-operative, Fane Valley, represents a major step forward for the industry and for Lakeland Dairies, albeit not via the structure initially envisaged. The move will reinforce our continuing commitment to pay the highest possible milk price to all our milk producers through continuing innovation, efficiency and excellence in everything we do. We look forward to working with our colleagues in Fane Valley to progress the mutual success of our milk suppliers in the years ahead.”
Mr Hanley concluded: “Producers with queries on the new arrangements are encouraged to contact their usual farm liaison officer who will be pleased to provide further information.”
Commenting on these developments, Ulster Farmers’ Union chief executive Wesley Aston said that the deal arrived at between both organisations represents the best possible outcome for Fane Valley’s dairy farmer suppliers.
He added: “It’s up to Fane Valley’s board members to ensure that the money received for the sale of the dairy division is now invested in a way that ensures the best possible future for the co-op.”