The proposed merger between dairy co-ops Milk Link and First Milk collapsed this week after the two parties failed to agree on a valuation for the businesses.

The merger would have created a business with a turnover in excess of £1bn that controlled 25% of Britain's raw milk supply. It would also have held a dominant position in own-label cheese.

But following due diligence, which had been ongoing since last October, the two companies confirmed in a joint statement this week that they could not agree terms to recommend to farmer members.

"Both boards believe strong farmer-owned dairy businesses are vital to the long-term future of UK dairy," they said. "As such, both will continue with their plans to grow and develop their businesses."

In a letter to members, First Milk chairman Richard Greenhalgh said that despite six months 0f talks, the two had been unable to agree on crucial issues. "As the business case for this deal was compelling, we showed a great degree of flexibility in our attempt to reach agreement with Milk Link," he said. "However, having exhausted every avenue, we were unable to reach agreement."

Milk Link corporate affairs director Will Sanderson said Milk Link had been flexible and offered a number of alternatives but the proposals were ultimately not in the best interests of farmer members.

The proposed merger had already received the blessing of the OFT, which said it would not have resulted in a substantial lessening of competition and that the industry was largely supportive of the merger.

The failure of the deal was greeted with dismay by many in the industry. The NFU said it was a missed opportunity to bolster UK producers in Europe. "We cannot help but feel that the British dairy industry will be left further behind its EU competitors," said dairy board chairman Gwyn Jones. "We operate in an increasingly international market and to compete businesses must rationalise or will not survive."

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