PLANS for a takeover of Britain’s largest milk producer have run into trouble.

Arla of Denmark already owns 51% of Arla UK, the £1 billion-a-year company behind Express Dairies, Lurpak and Anchor butter. Two months ago, the two sides announced they were in talks that could lead to the Danish group taking full control of Arla UK by buying the 49% that is now owned by outside shareholders.

But negotiations have stumbled, according to people close to the talks. Insiders still hope an agreement can be thrashed out. They admit, though, that negotiations over how to fill a hole in Arla UK’s pension fund have held up a deal. Even if details of a takeover can be settled, it will not be before the new year. At the end of September, the Arla UK pension deficit was put at £143m.

Trustees of any pension fund of a company targeted for takeover have to ensure that a new owner can guarantee the benefits of members of the scheme.

Investors in Arla UK had been expecting details of an offer to be spelt out well before now. Peder Tuborgh, chief executive of the Danish group, said in October that an offer for the British company would be in cash. Financing was already in place, he said.

Analysts expect a takeover — if it happens — will be at about 70p a share, which would value the British company at more than £420m.

Arla UK was formed three years ago by the merger of Express Dairies with the British operations of Denmark’s Arla, Europe’s second-largest dairy by sales. The terms of the deal were complex. Among the conditions laid down was that a majority of Arla UK’s non-executive directors should be independent of the Danish group.

That gives Arla UK some latitude. But the Danish group has given a thinly veiled warning that if the merger does not go through, it may try to obstruct the payment of a final dividend to Arla UK’s shareholders.

When Arla UK announced its full-year results, it said it would propose a final dividend of 0.8p a share. But the company added: “Payment of the final dividend is subject to the approval of shareholders at the annual general meeting. Arla Foods amba (the Danish company) ... have informed the board that they reserve their position as regards their voting intention in the event that a recommended offer for the outstanding 49% of the shares in the company not held by Arla Foods has not been made prior to the meeting.”

It would, in theory, be possible for the directors of Arla UK to pay a succession of interim dividends.

Arla UK has only just finished reshaping its business after the takeover of Express Dairies in 2003. The group reckons to have reduced its milk-production costs by 28%. Sales of Lurpak, Anchor and Cravendale milk are all growing.

Arla has sold several parts of its operation that handle home deliveries. It is the biggest supplier of fresh milk to the leading supermarkets.