(Reuters) - Canada’s Saputo Inc is to enter the British market for the first time after agreeing to buy food company Dairy Crest Group Plc for 975 million pounds ($1.27 billion).
Shares in Dairy Crest were up 12 percent at 625 pence at 0940 GMT, topping Saputo’s offer of 620 pence per share in cash. At its peak in 2007, the FTSE-250 company’s shares were valued at as much as 746 pence.
Montreal-based Saputo described Dairy Crest as an attractive platform for growth in the UK, adding that Dairy Crest would continue to make its products from existing facilities in the country.
Dairy Crest’s Cathedral City and Davidstow cheese brands and Country Life butter will complement Saputo’s existing cheese business, which include Armstrong Cheese and Cheese Heads.
The deal comes about a month ahead of Britain’s plan to exit the European Union, which is expected to put pressure on supply chains and boost prices of dairy products.
Dairy Crest said in January that it was speeding up buying ingredients and packaging material to cushion any Brexit blow, although the company’s supply chain and customer base is primarily located in Britain.
Discussions between the companies first began in January this year and have moved on “quite fast” since then, a source familiar with the matter said.
Dairy Crest, which traces its history back to the British government’s Milk Marketing Board, plans to recommend that shareholders vote in favor of the deal, considering the terms “fair and reasonable”. Saputo’s offer price represents a premium of about 11.7 percent to Dairy Crest’s close of 555 pence on Thursday.
The British maker of Frylight sprays had been shifting strategy to focus more on its profitable cheese business and spreads, selling its dairy operations in 2014 after it struggled with low milk prices in the country.
Saputo, one of Canada’s largest dairy companies, has been growing through acquisitions with 30 deals since it became publicly traded in 1997.
In 2017, the company bought Australia’s Murray Goulburn Co-operative for $490 million to become Australia’s top milk producer.
The deal will be funded from debt to be provided under a credit agreement arranged and fully underwritten by National Bank of Canada and Bank of Montréal, Saputo said.
Lazard acted as sole financial adviser to Saputo, while Greenhill worked with Dairy Crest.
($1 = 0.7683 pounds)
Reporting by Pushkala Aripaka and Arathy Nair in Bengaluru; Editing by Bernard Orr/Keith Weir