Dairy processor Dale Farm has contacted rival LacPatrick to signal interest in bidding for the business, which is seeking to join forces with another player.
LacPatrick chairman Andrew McConkey confirmed this week that a board meeting decided the co-op should pursue “partnerships, joint ventures, mergers” or other opportunities.
It is understood that Dale Farm, formerly known as United Dairy Farmers, contacted LacPatrick shortly after Mr McConkey’s statement to say that it was interested in talks on a possible deal.
Dale Farm chief executive Nick Whelan said on Thursday that the co-op had "been made aware of the situation at LacPatrick and we have an interest in these developments". He did not say if there had been any contact between the pair.
Belfast-based Dale Farm is Northern Ireland’s biggest dairy co-op and one of three businesses that the industry regards as obvious bidders for LacPatrick, which has been struggling with falling milk prices since late last year.
Sources also pinpoint Killeshandra, Co Cavan-based Lakelands and Ballyragget, Co Kilkenny-headquartered Glanbia as other prospective suitors for LacPatrick.
Mr McConkey's announcement did not surprise the industry. The co-op recently cut the price it pays farmers for milk by two pence sterling to 25p a litre in Northern Ireland and by 2.5 cent to 30.25 cent a litre in the Republic, blaming a weak market.
Its 2016 accounts show that bank debt grew by more than €13 million to €30 million, with the long-term element of this doubling to €16.9 million.
LacPatrick increased borrowing to invest in its business, including building a drier for powdered milk manufacture at Artigarvan, Co Tyrone, which cost €40 million. Its main lender is Danske Bank.
A board decision to hedge against the 2016 Brexit vote contributed to a €3.41 million foreign exchange loss at the co-op, 27 times the €131,000 it lost on currency fluctuations the previous year.
LacPatrick bought sterling before the June 2016 referendum , expecting its value to increase sharply once the UK voted to remain in the European Union. However, the British currency slumped as the electorate opted to leave. Sterling’s subsequent decline also contributed to the loss.
LacPatrick trades on both sides of the Border, buying five out of every six litres of milk that it processes from farmers in Northern Ireland.
More recently, the co-op spent €1 million upgrading systems for dealing with effluent from Artigarvan. However, LacPatrick has said that the plant was built on time and on budget.
Along with debt, it used profits from the sale of shares in food group Aryzta to help pay for the plant. LacPatrick had €75 million in net assets at the end of 2016 and earned almost €300,000 in profit that year.
Dale Farm is owned by more than 1,300 farmers, and is expected to report strong results for 2017. It has spent more than £60 million in the last five years developing its business.
The co-op’s products span milk, butter, cheese, yogurt, desserts and sports drinks.
Its brands include Dale Farm mile and ice cream, Mullins Ice Cream, Dromona, Spelga yoghurt, Rowan Glen and Loseley.