Sour milk: After a year of talks, Dairibord, Dendairy call off merger plans

Dendairy's Kwekwe plant: milk suppliers can't meet demand

Dairibord and Dendairy have cancelled merger talks, failing to strike a deal on strategy and ownership after over a year of negotiation. 

Last year, Dairibord, the country’s biggest dairy company, announced it was discussing a merger with Dendairy, the number two producer.
A merger would have further consolidated Dairibord’s market leadership and created a company with a commanding market share.

But Dairibord says in a cautionary filed on Monday that talks have now been cancelled. 

“Dairibord and Dendairy have been exploring opportunities for creating sustainable shareholder value for mutual benefit,” but “the conclusion of the discussions indicates that it is in the interest of both parties to discontinue the process and remain as separate entities.”

Kwekwe-based Dendairy, formed in 2004, is owned by the Coetzee family. Scandinavian private equity firm Spear Capital bought 27% of Dendairy in 2015.

The two companies could not agree on the post-merger structure of the company, according to an official familiar with the discussions. 

Dendairy owners wanted a deal that would have allowed them to expand a new plant in Kwekwe, but still give them enough control in the merged entity. 

“There are discussions (with Dairibord) regarding a possible merger…but these will only result in a deal if the Kwekwe operations are greatly expanded and we are actively involved in any future entity,” Dendairy MD Daryl Archibald said in a note to associates during the talks.

Expansion plans

In 2018, Dendairy started a project to expand operations at its Kwekwe plant, adding three new packaging lines. These would double production from 4.6 million litres per month to eight million litres. The project was, however, delayed by funding and later by COVID-19, which disrupted procurement.

Dairibord, on the other hand, was looking to expand its own processing capacity, but also benefit from Dendairy’s expanding raw milk production. Dendairy has recently grown its dairy herd via imports. 

It is also pushing ahead with a plan to set up a large lucerne grass and dairy project in the Lowveld, despite controversy over the planned eviction of some locals to make way for irrigation. 

With the Dendairy plan now abandoned, Dairibord will focus instead on a strategic partnership with Tavistock, its largest raw milk supplier.

Under that deal, Dairibord helps Tavistock secure structured finance through loan guarantees and other capital raising methods to fund growth. This will help Dairibord grow raw milk intake. 

Dairibord accounts for 40% of the national milk intake, and a merger with Dendairy would have dwarfed number three rival Prodairy, which takes in 20% of the country’s milk. 

Since privatisation in 1997, Dairibord’s merger and acquisition activity has met with mixed results.

Dairibord’s takeover of Lyons Zimbabwe in 2001 worked, as the company managed to grow Lyons’ already strong brands. In 2002, Dairibord bought 40% of confectioner Charhons, but sold the stake to Cairns in 2012. Dairibord unsuccessfully bid to takeover Cairns in 2015.