A joint statement issued on Tuesday (23 February) said the two privately owned companies were examining whether a potential merger will create the basis for a viable, long-term fresh liquid milk business.
This follows months of speculation, with the merger concept repeatedly dismissed in terms that the two middle ground processors were simply working more closely on processing arrangements.
If the negotiations are successful any merger would be notified to the Competition and Markets Authority, said the companies.
Just days before the merger talks announcement, a charge was lodged by Medina Dairy at Companies House, giving Freshways security over property and land owned by Medina and associated companies at Southall, Worthing, Windsor and Luton.
Freshways is the trading name of Nijjar Dairies Limited. The three chargees named in the security document are Nijjar Dairies Limited, the Trustees of the Nijjar Dairies Retirement Benefit Scheme and an associated company, RSN Property Limited.
Referring to the charge, the statement said that an entity linked to Freshways had taken security to protect arrangements with the Medina Group, and that the terms of those arrangements did not give Freshways any control over the day-to-day operations of Medina. It also stated that the Medina Group remained wholly independent.
Both companies were badly hit by the initial pandemic lockdown last spring, as they mainly supplied to hotels, pubs, restaurants, coffee shops and other food service customers, either directly or through wholesalers.
The impact on farmer suppliers was devastating and included large price cuts, delayed payments and dumping of milk. Since then, contract disputes have arisen between the processors and their milk producers.
The fresh liquid milk market had, for a number of years, been a highly challenging one, said the joint statement.
“A market characterised by the dominance of two major national players, low margins and declining sales volumes. In response, businesses large and small have sought to consolidate, rationalise and cut costs, but despite this a number have proved to be unsustainable.”
Bali Nijjar, managing director of the Freshways group of companies, said: “We are very excited about the possibility of entering into a partnership with the Medina Group, as we believe that the two companies have complementary structures and cultures, which will mean we are able to compete even more effectively with the two large players which dominate the dairy sector in the UK.”
Medina Dairy chief executive Sheazad Hussain said the company was looking forward to working with the directors of the Freshways business to explore the possibilities of a merger.
“In doing so, our joint objective will be to create a business that is leaner, more agile and fit for purpose. One that will benefit customers, consumers and suppliers, and will ultimately be well placed to grow and develop in a sustainable manner for the long term.”