The £80 million sale of Dairy Crest's dairy business to Muller UK and Ireland Group will go ahead in December after the competition watchdog approved the deal.
The Competition Markets Authority (CMA) had expressed concerns over the impact of the deal on the supply of milk in the catchment area of Dairy Crest's Severnside dairy.
But the watchdog has now approved a deal that will see the dairy firm process 100 million litres of milk a year for the Medina Dairy in the south west for up to eight years, easing competition and supply concerns.
Dairy Crest said it will pay Muller £15 million on completion of the deal to help meet the additional cost of the modified undertakings.
Dairy Crest chief executive Mark Allen claimed the deal would create a more sustainable UK dairy sector.
"It will deliver economies of scale and cost efficiencies that will underpin investment in the sector and help the UK to compete more successfully in global markets," he said.
"Dairy Crest will now be able to focus on growth, through both our branded cheese and spreads operations and new revenue streams from manufacturing products for the fast-growing global infant formula market."
Environment Secretary Elizabeth Truss said: "This sale of Dairy Crest's Dairies operations to Muller will provide greater stability for our milk industry and the hard-working farmers who supply it.
"It will also allow Dairy Crest to focus on growth in its cheese and spreads business in the UK, and innovative new products for export to high-growth markets.
"Dairy farmers are a vital part of our £100 billion food and farming industry and today's decision is welcome news. This deal will encourage further investment in the sector which will in turn enable the UK to compete more effectively internationally."
Shares in Dairy Crest were up more than 0.5% in afternoon trading.
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