Shaking Up the Milk Market - Why Muller Might Want to Buy Wiseman

At first blush it seems very odd that Muller Dairy, a very successful branded  yoghurt and desserts company, would shell out £279m to buy Wiseman – a one  product, one distribution channel company who are totally reliant on selling a commodity to fickle, hard negotiating supermarkets and  regularly issue profit warnings as a result.

Indeed, the Wiseman team saw the strategic writing on the wall nearly two years ago, in summer 2010, and appointed a financial advisor Greenhill to get themselves acquired. Muller apparently was the top contender. So Wiseman will be delighted with the outcome and as all the papers have pointed out the eponymous brothers have benefitted handsomely.

The rational for Muller is more difficult to pinpoint. Muller has a reputation for being secretive, and being privately owned is under no obligation to tell us the thinking behind their purchase. Their UK MD has confined comments to a bland statement about the two companies uniting to become a leading dairy player which can offer “exceptional products” to their customers.  Investment analysts seem baffled. Peel Hunt reckoned that there is no strategic logic to the move. Clive Black of Shore Capital could not see much benefit except in the area of milk procurement, collection and utilisation which he felt could be substantial.

Further mystery has been added by reports saying that the reason for purchase is not so called “hard savings”, ie the costs that can be shaken out of a merged business through streamlining back office functions like accounts, IT, purchasing, logistics, and administration. Apparently Wiseman will be left to run itself as it did – at least for now.

So we must look further afield for enlightenment. The clues could come from Mullers business in Germany. In Germany Muller sells not just yoghurts and desserts but cheese, butter, and fresh and UHT milk. It also has a big private label unit dedicated to providing brand and product development , packaging and logistics services to major European grocery players. Perhaps access to Wiseman’s milk supply would pave the way for some of their European products and expertise to be brought to the UK.

The one thing we do know about Muller is that it is highly innovative. Their entry into the UK yogurt market transformed the way it operated, improving quality, adding innovative products with the corner concept, and packaging innovation with the square container which is logistically more efficient than the round pots which previously prevailed .
Muller must see the acquisition of Wiseman  as platform for new product introduction which will wake up the hitherto rather  sleepy UK dairy market.

Players such as Dairy Crest and the milk cooperatives should standby for a milk shake up.