Kerry Group has beaten off keen international competition to acquire the food ingredients business of Dalgety Plc for £335 million sterling (£394 million) in a move which will give it the top spot in the speciality ingredients business in Europe.

The enlarged group will have a combined turnover of close to £1.7 billion and the acquisition of Dalgety Food Ingredients (DFI) will mean that more than twothirds of Kerry's sales will be derived from its ingredients division.

The purchase will also provide Kerry with its first manufacturing operations in the Netherlands and Hungary and with additional locations in France, Germany and Italy.

"The combination of DFI and the group's existing ingredients operations and technologies will further strengthen Kerry's position as a world class ingredients business capable of servicing the requirements of major international food manufacturers and food service companies," Kerry said.

Dalgety Food Ingredients has operations in eight European countries and comprises Dalgety's food ingredients and milling businesses. Sold as part of a restructuring by its parent, the company employs some 2,500 people including around 35 at its Dublin plant.

It had sales of £359 million sterling and operating profits of £29.9 million in the year ended June 30th, 1997, and its net assets totalled £165 million sterling.

Kerry said the proposed acquisition will significantly strengthen its position in the market for coatings, batters, flavours, seasonings and bakery applications, while also extending its customer base in Europe.

"DFI has demonstrated excellent technical capabilities and has established a strong European wide manufacturing base with world class modern facilities," Kerry's managing director Mr Denis Brosnan said. "In bringing together two complementary food ingredients businesses we have considerably enhanced our customer and market base in Europe."

Kerry said it would finance the acquisition, which is scheduled for completion in early March, through lines of credit arranged with its banks. It has no plans for a rights issue or placing, nor does it plan to dispose of any parts of the business.

The group's current borrowing level of £270 million will soar to more than £650 million following the acquisition but a Kerry spokesman noted that the enlarged group enjoyed cash flow of some £166 million 1996. This should be even higher in 1997 and can be used to tackle the debt.

The announcement had no impact on the share price which was unchanged in Dublin yesterday at 780p.

Meanwhile, Kerry plans to retain all of the businesses acquired including the milling business despite speculation to the contrary.

"There has been some speculation that the Spillers side may not be a fit," the spokesman said. But he said Spillers Consumer Foods, which is the leading UK producer of pre-packed flour and bakery mixes and includes the Homepride brand in its range, fits perfectly with Kerry's consumer food business. Kerry is also happy with Spillers Premier Products, which develops, manufactures and markets technical ingredients to bakeries and food manufacturers in the UK and overseas.

And Kerry plans to hold on to Spillers Milling, the third largest flour milling business in Britain and the largest independent miller. The spokesman said there was a close relationship between the milling business and the other businesses as both Kerry and DFI need milling products for the coatings and bakery businesses. As well as supplying what is a big raw material in the ingredients business, the spokesman said Spillers Milling was a profitable business, well structured, well managed and well capitalised.

Kerry is paying a multiple of 11.2 times DFI's 1996 operating profits, less than the multiple it paid for DCA Food Industries in 1994. The company believes the two businesses are complementary with no overlapping facilities, while there should be some synergies in the pooling of various technologies.

To succeed in its bid, Kerry had to fight off competition from interested parties worldwide.

A Dalgety spokesman said there were a large number of bidders, both trade buyers and venture capitalists, from Britain, Ireland, continental Europe and the US. Both Associated British Foods and Tomkins had expressed an interest in Dalgety's flour milling business.

But Kerry's interest in the whole business, signalled as soon as Dalgety announced the planned sale as part of a restructuring programme last September, gave it an obvious advantage over rival bidders. Reports in the UK media suggesting that Greencore was still in the bidding process toward the end are believed to be incorrect. Greencore was also thought to have been interested in Dalgety's milling business.