Dutch-Danish merger to form world’s largest dairy producer?

(Update) The chairmen and management of dairy cooperatives FrieslandCampina and Arla are reportedly holding exploratory talks on a possible merger. This would result in the world’s largest dairy company.

Bigger than Lactalis

Both companies have not yet confirmed the talks, but Dutch trade medium foodbusiness.nl says it got the news from reliable sources. FrieslandCampina chairman Sybren Attema is said to have been in talks with Arla colleague Jan Toft Nørgaard for weeks, and management is also involved in the talking.

Both dairy cooperatives, which are also active in the Benelux, are about the same size: Dutch FrieslandCampina is worth 11.5 billion in turnover, Danish Arla 11.2 billion. Together, with a combined turnover of 22.7 billion, they would become just slightly larger than Lactalis, currently the global number one in dairy.

Economies of scale

The dairy sector faces major challenges in terms of milk supply, climate requirements and financial profitability. Economies of scale could give both companies a stronger position in international markets.

A possible merger will take some time, however: it needs the approval not only of the European competition authority, but also of all cooperatives, the dairy farmers who supply the milk. The two companies already held merger talks in 2005, which then came to nothing.

Update: In an email to business contacts, Arla CEO Peder Tuborgh denied the rumours: “They are completely unsubstantiated.” However, neither company is formally responding.