Robert Wiseman Dairies is to buy Milk Link's fresh milk business in a deal which could be worth £5.5 million in cash.
Wiseman said the acquisition of the business, which comprises Peninsula Milk Processors and Newlands Farm, would proceed once the Office of Fair Trading confirmed it would not refer it to the Competition Commission.
As part of the deal, Wiseman will enter into a supply contract with Milk Link, a co-operative of about 2,000 British dairy farmers, for a certain proportion of its raw milk requirements in the south west of England.
This will ensure that milk requirements for Wiseman's South West operation is met by dairy producers from the area.
Milk Link currently sells around 32 million litres per year, mainly to retailers and neighbourhood shops, from dairies in Okehampton, Devon and Pensilva, Cornwall.
Wiseman currently supplies around 1.4 billion litres and has 24 per cent of the market in Britain.
It said the purchase would be a strategic acquisition that would benefit the business and strengthen relationships with its customers.
Wiseman last month said record production levels helped to lift annual profits rise by six per cent.
The group, which employs around 400 people at its dairy in Droitwich, posted annual pretax profits of £26.7 million for the year to April 1 - up from £25.2 million previously.
As well as the benefiting from enhanced contracts with supermarkets Sainsbury's and Tesco, the company said yearon-year efficiency improvements of ten per cent had enabled it to overcome the impact of high oil costs.
Wiseman chief executive Robert Wiseman said: "This acquisition complements our plans to open a new £46 million dairy in Somerset in autumn 2007, and will allow us to quickly grow there."
The final price will depend on an assessment of the volume of milk transferring and net assets at completion.
