The deal, which is subject to the approval of Dairy Crest shareholders and UK regulators, will see Müller acquire Dairy Crest’s fresh milk business, flavoured milk brand FRijj, bulk and potted cream and bulk butter and milk powder businesses.
Müller will also absorb Dairy Crest processing plants in Foston, Chadwell Heath and Severnside, the company’s glass bottling site in Hanworth, and 72 depots.
The parties will under the proposed deal also enter into a supply agreement whereby Müller's British business Müller Wiseman Dairies will sell butter to Dairy Crest for five years.
Commenting, Ronald Kers, CEO, Müller UK & Ireland, said in the mid to long term the acquisition will allow it to improve the efficiency of its fresh milk business.
“We aim to create a more competitive, sustainable, efficient and innovative dairy processor in the UK which will generate real benefits for customers, consumers, employees and suppliers," said Ronald Kers, CEO, Müller UK & Ireland.
Mirroring Kers' comments, Mark Allen, CEO, Dairy Crest, said the transaction will be a "positive development" for it and the British dairy industry.
“This combination of our dairies operations with those of Müller Wiseman Dairies will create efficiencies and economies of scale that will help to create a more sustainable UK dairy sector that is better placed to compete on the global stage," said Allen.
Cheese, butter, and whey
Proceeds from the sale will be used by Dairy Crest to reduce its net debt, which on September 30 2014 stood at £209.6m (US$334m, €267m).
The company now plans to focus on its cheese, butter and spreads business, which incorporate its Cathedral City, Davidstow, Clover, and Country Life brands.
To facilitate this, Dairy Crest will retain its cheese production, storage, and distribution sites in Davidstow, Nuneaton, and Frome, and its spread and spray oil plants in Kirkby and Erith.
It will also continue its project with New Zealand dairy Fonterra to produce and market infant formula ingredients, demineralized whey and galacto-oligosaccharide (GOS), at its Davidstow plant in Cornwall.
"The disposal will allow Dairy Crest to focus on continuing to grow our successful and innovative branded cheese and spreads operations," Allen added. "We will also deliver additional added value sales through our whey investment."
"We are confident that this focus will deliver further medium term profit growth for our shareholders."
Dairy Crest expects the deal to close in the next several months.