Express Dairies has confirmed that it has received a takeover approach which may lead to an offer for the company.

Weekend press speculation named the Danish firm Arla Foods, the maker of Lurpak butter, as a possible bidder.

Express Dairies is the UK's leading milk supplier but it has been hit by a severe slump in profits over the last year.

In a statement the company said it was in "preliminary discussions which may or may not lead to a cash offer being made for the company."

Shake-up needed?

Last November Express announced a 44% drop in interim profits and scrapped its dividend to shareholders.

At the time it said trading conditions had "proved even tougher than we anticipated."

Its doorstep delivery service had continued to be hit by falling demand, and it had also suffered from the rising price of raw milk.

Many observers say the milk industry is due for consolidation as the market is suffering from over-capacity.

This has led to fierce competition among milk suppliers selling to the main retailers, which has cut profits.

Competition concern

But there is a possibility that a bid from Arla could face regulatory hurdles.

A deal would take the company's share of the milk retailing market to more than 45%, which could trigger an investigation by the UK's Competition Commission.

There is also speculation that a move by Arla could spark a counter-bid by the Scottish milk group Robert Wiseman Dairies.

Shares in Express Dairies nearly doubled on the news of the takeover approach, and after an hour of trade were up 12p at 26.5p.