Analysis Dairy
Merger FrieslandCampina and Milcobel: 5 conclusions
The upcoming merger between FrieslandCampina and Milcobel is naturally big news in the dairy world and also very surprising. However, when you zoom in deeper on the situation, it is certainly not an illogical step. Both dairy cooperatives expect to be stronger together in the escalating battle for the shrinking milk volume in Northwestern Europe. At first glance, the members of Milcobel benefit the most, but most likely have to give up their Belgian identity for this.
Although much is still unknown and needs to be further elaborated in the course of next year, FrieslandCampina and Milcobel have today tried to bring out a lot of information. This is necessary to enthuse the members of both cooperatives to join forces. The members' councils of both cooperatives still need to approve the intended decision, and ambiguity can easily disrupt this process.
However, for now, there seems to be no spoiler, as the willingness to merge is strong on both sides. We summarize a few conclusions.
1. Joint challenge unites
A common enemy often fosters unity. Perhaps this was also the reason for FrieslandCampina and Milcobel to merge. Both companies have struggled significantly in recent years, mainly due to A-ware, which has 'taken away' many farmers from both FrieslandCampina in the Netherlands and Milcobel in Belgium, partly due to mistakes made by both cooperatives. Both FrieslandCampina and Milcobel had to undergo significant restructuring and cuts in the production apparatus as a result. The high outflow has somewhat subsided at both FrieslandCampina and Milcobel, but the challenges remain. Both in the Netherlands and Belgium, the milk supply is (significantly) at risk of shrinking. FrieslandCampina CEO Jan Derck Van Karnebeek emphasizes that the merger is not a prelude to further restructuring. That is at least the goal. The idea is to utilize the production apparatus more efficiently and jointly tackle the challenges and opportunities in the market. This is necessary because both companies incurred losses in 2023. Peter Grugeon, CEO of Milcobel, articulates in the classic way that the sum of two companies yields more than being separate.
It is noteworthy that it is indicated that formal merger talks have only started a few months ago. The desire to merge is evidently very strong.
2. Unequal merger
The merger is claimed to be based on equality, as is vehemently asserted. Formally, this may be true, but who believes it? In practice, it is different. FrieslandCampina is nearly ten times larger in terms of milk volume than Milcobel. It is therefore telling that the merged company will continue as FrieslandCampina. The name Milcobel will disappear from the facades of the Belgian factories, but will not completely vanish, as it will be linked to the two districts that the merged cooperative in Belgium will have. It has not been disclosed yet where the headquarters will be located, nor who will be the CEO of the m
3. Milcobel members reap the most benefits
For Milcobel members, the merger is more profound than for FrieslandCampina. They are merging into a larger entity. At the same time, they also reap the most benefits from it. FrieslandCampina, due to its size, has better access to markets, which benefits the valorization of milk. The solvency of FrieslandCampina, at 37%, is considerably stronger than that of Milcobel, which is tight at 25%. Therefore, the need for Milcobel to merge is greater. Betty Eeckhout did not deny in this afternoon's press conference that discussions were also held with other companies. The Guarantee Price as FrieslandCampina currently knows it remains intact. This addresses a sensitive issue, as in recent years, the often lagging milk price of Milcobel has been one of the main criticisms of the members. Implicitly, this also means that FrieslandCampina will contribute slightly more from the Netherlands to bring the milk price in Belgium to the same level. A noteworthy detail is that the milk price of Milcobel is currently part of the basket on which FrieslandCampina bases the Guarantee Price.
4. Cultural gap smaller than in 2008
When FrieslandFoods and Campina merged in 2008, a cultural gap between North and South Netherlands had to be bridged. This turned out not to be easy at the time, as cooperative chairman Sybren Attema will surely remember. Therefore, a new and neutral base was chosen with Amersfoort. Such obstacles are not expected to be present now, in the sense that the merger process is being treated rather lightly. Both companies literally speak each other's language, and the cooperative roots are seen as unifying, as indicated by both sides. But could this lead to underestimation? Mergers are inherently challenging and therefore not without risks, although the presented benefits sound plausible. For example, a merger can easily distract from one's own optimization process.
5. Merged company larger than Arla again
The ultimate goal of the merged cooperative is to join forces and recruit new members. Naturally in the Netherlands and Belgium, but also in Northern France, where Milcobel is already active. With the merger, FrieslandCampina expands its recruitment area. The German market also offers opportunities. In a market where supply volumes are increasingly under pressure, scale is crucial, as emphasized by both the CEOs and the cooperative chairmen in the press conference. With 10 billion kilos of member milk and a turnover of €14 billion, FrieslandCampina will once again be larger than Arla, which caught up last year. The next task is to at least outperform Arla's return.
Wouter Baan
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