Today’s big announcement that Dairy Crest has agreed to offload its dairies operation to Müller prompted a rally in the processor’s share price today, trading 15% up on yesterday’s closing price.

The £80m deal will see Müller acquire Dairy Crest’s fresh liquid milk, flavoured milk (including the Frijj brand), bulk and potted cream, bulk butter and milk powder businesses.

Müller will also taking over dairy facilities at Severnside, Chadwell Heath, Foston and Hanworth, around 70 depots and the Milk & More doorstep delivery service, while Dairy Crest will concentrate on its predominantly branded, cheese and spreads operations and the development of whey-based products for the global infant formula market.

Response to the deal - which was announced in tandem with Dairy Crest’s interim results for the six months to 30 September - has largely been positive, especially for the prospects of Dairy Crest itself.

The business reported a 3% drop in pre-tax profits to £21.3m, with revenues rising by 1% on the six months to 30 September 2013 to £682.1m.

While the results were in line with analyst predictions, news of the sale was described as an “excellent deal” for Dairy Crest by Shore Capital’s Darren Shirley.

“The consideration for the dairies is £80m payable in cash, whilst Dairy Crest will also retain full ownership of previously closed dairies at Totnes and Fenstanton, the Chard site and also a number of already closed diaries which we expect to realise a further c£20m on disposal,” he said.

“We also expect Dairy Crest to benefit from c£15m of tax benefits from the deal, taking the total value to c£115m,” suggested Shirley, who added that credit should go Mark Allen and his team in engineering this event.

Alex Howson, equity analyst for Jefferies International added that the divestment should lead to “no material downgrade to the forecast EBITDA of the existing spreads and cheese divisions”, while Dairy Crest’s five year deal with Müller for the supply of bulk butter negated the issue that it would no longer be able to transfer cream from dairies to spreads for Country Life.

Howson said the sale of the loss-making dairies business was “much anticipated” - the 15% jump in Dairy Crest share price today to 490p suggests investors agree.

What the deal also means is that the vast majority of the UK’s milk market is in private hands and so the sector has suddenly become considerably less transparent now almost all of the industry is hidden away from the gaze of the public markets.

Sat on a 15% profit today, Dairy Crest investors are unlikely to be too concerned.

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