The proposed merger of Fane Valley and Lakeland Dairies’ feed manufacturing and dairy processing interests, first announced last August, will now not proceed. Instead, Lakeland has acquired the Fane Valley Dairies business based at Banbridge, Co Down.
The original plan was for Northern Ireland’s Fane Valley to lead a merged agribusiness, with a combined 500,000 tonnes of feed manufacturing capability and projected annual revenues of £125m. At the same time, the Republic’s Lakeland Dairies would have managed the combined milk processing facilities which have a total capacity of over 1 billion litres and a £480m turnover.
The parties now say the simplified deal structure which came into effect on May 1st, for an undisclosed sum, is a better, less complex option than the strategic joint ventures originally proposed.
“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, notes Fane Valley chief executive Trevor Lockhart. “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 JV 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. 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.
“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 will not be advanced.
Mr Lockhart concludes: “Fane Valley will continue to develop and invest in its wider agriculture and food related businesses.”
For Lakeland, chief executive Michael Hanley states: “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 JV arrangements, with 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.”