The maker of Clover and Country Life has announced plans to acquire doorstep delivery business Express Dairies in a deal worth £33 million.
Dairy Crest yesterday said the combination with its own doorstep operation would create the largest doorstep service in the UK with around two million customers being served across England and Wales.
The deal includes 77 distribution depots, as well as dairies at Liverpool and Nottingham and around 1,850 employees.
Dairy Crest - which has a distribution centre in Nuneaton and 12 depots in the region - said significant cost savings were likely from the tie-up, but did not provide details.
The Surrey-based group closed the Midlands Co-op dairy in Birmingham in February after taking the business over in 2005 for £20 million.
Milk production, and some jobs, were transferred to Dairy Crest's Staircross site at Foston in Derbyshire.
Dairy Crest chief executive Drummond Hall said combining with Leicester-based Express made sense in a declining market.
He said: "We will be able to prolong the life of these businesses by putting them together.
"We will invest in canvassing, invest in service initiatives and run the business to our model."
As well as doorstep delivery, the Express operation serves small and medium-sized retailers, wholesalers and organisations such as schools and restaurants.
Arla Foods, which owns Express, said rationalisation in the delivery market had been needed for some time.
Arla chief executive Tim Smith said the sector's share of the liquid milk market in England and Wales had reduced significantly since 2000 - from 25 per cent to 11 per cent.
He added: "In order for this sector to have a viable future, further consolidation of the industry was required."
The disposal, which is expected to be completed next month, would enable Arla to concentrate on its Cravendale, Lurpak and Anchor brands, as well as the distribution of fresh milk to supermarket customers.
Dairy Crest said the acquisition would result in significant synergies for the company, including more efficient delivery and integrating administration and depot overheads.
Those were anticipated to peak at around £9 million 2008/09 and should benefit group profit before tax by around £2 million in the current financial year and by around £8 million in 2007/08.
Acquisition and integration costs were expected to be about £7 million over the next eighteen months.
Separately, Dairy Crest said it was reducing the allocation of pension fund assets in equities from 69 per cent to 60 per cent.
It was expected that would reduce pre tax profit by about £2 million per annum from 2007/08 onwards.
At September 2005 the value of gross assets was £51 million with net assets of £26 million. The operating profit before tax was £7.2 million on a revenue of £229 million.
The sale is expected to be completed in August following a consultation process.