LacPatrick/Lakeland merger likely to create 1.8bn litre co-op

The proposed deal between Lakeland and LacPatrick co-ops, set to go to a vote of shareholders this September, will make the new entity the second largest buyer of milk in the country and the largest buyer of milk in Northern Ireland – with a combined milk pool of around 1.8bn litres.

That will take it ahead of Dairygold, which currently processes around 1.3bn litres of milk. The announcement that Lakeland and LacPatrick were entering into exclusive talks came last Thursday.

While Lakeland has the much stronger hand, it is not a takeover, but an amalgamation or merger of the co-ops.

The fact that it is a merger probably makes it easier for LacPatrick to get agreement on the deal from its shareholders. It is understood to help smooth the process, current LacPatrick suppliers will be offered a number of positions on an interim board.

The bigger challenge might be to convince Lakeland shareholders to go with the deal.

The vast majority are Republic of Ireland suppliers, who will have to be convinced of the merits of a new arrangement that will effectively see around 60% of the milk pool in Northern Ireland.

On the one side there is the debt of LacPatrick, believed to be over €30m, but on the other side a milk pool close to 600m litres, a new £30m drying plant in Artigarvan (that solves any processing concerns around Brexit), plus modern facilities at Ballyrashane and Monaghan.

For LacPatrick the decision to opt for Lakeland over other bidders was probably partly driven by concerns about holding onto its milk pool throughout a negotiation process.

Despite that, there is a realisation that some of the pool could be lost.