Share­hold­ers’ anger as suit­ors line up

Irish Independent - Farming - - FINANCE - DARRAGH McCUL­LOUGH

AS the suit­ors line up to claim the spoils from LacPa­trick, spare a thought for the farmer share­hold­ers of the north­ern out­fit.

In the same way that Dairy­gold sup­pli­ers were up­set a decade ago, the men and women who built up the Town of Mon­aghan busi­ness that took over Bal­lyrashane Co-op three short years ago are un­der­stand­ably an­gry with the sit­u­a­tion that they now face.

At the end of 2014, the ac­counts show Town of Mon­aghan Co-op had cash in hand and at the bank to the tune of €32m. The board had au­tho­rised a ma­jor ex­pan­sion to the North­ern Ire­land dry­ing plant but no con­tracts had been signed at that stage.

Within the space of a few months, the then new CEO Gabriel D’Arcy had made his first big move by ‘merg­ing’ with the strug­gling Bal­lyrashane Co-op. With around 100 sup­pli­ers came a healthy 100 mil­lion litre milk pool.

And LacPa­trick got to work re­vis­ing plans for a 5t milk-dry­ing plant at the Ar­ti­gar­van plant, 20km south of Derry city into a 7t one com­plete with plenty of ex­tras. It was de­liv­ered at a cost of over €40m.

Mean­while, a num­ber of ex­pe­ri­enced man­age­ment ex­ited the Town of Mon­aghan’s HQ.

How­ever, the lofty as­pi­ra­tions of the merger of the co-ops has turned de­cid­edly sour for the new en­tity as the board re­cently de­cided to go to the mar­ket look­ing for a white knight from its erst­while com­peti­ti­tors.

As LacPa­trick went out court­ing suit­ors for merg­ers, part­ner­ships or other tie- ups, it stated it re­mained a prof­itable co-op and all farm­ers would con­tinue to be paid on time “each and ev­ery” month re­gard­less of how long the process takes.

Af­ter its lat­est milk price lagged be­hind the com­pe­ti­tion by over 10pc, a cou­ple of dozen sup­pli­ers in the North sent in ter­mi­na­tion no­tices.

There are many ques­tions now oc­cu­py­ing the minds of all se­ri­ous stake­hold­ers. Equally, prospec­tive suit­ors will have a string of ques­tions in­clud­ing how much the coop is worth. Truth is no­body knows. The lat­est an­nual ac­counts avail­able from 2016 show it had an op­er­at­ing profit of €2.9m with a profit for the year of €298,487, while the 2017 ac­counts showing the lat­est cash in bank and debt are not yet avail­able.

How­ever, farmer share­hold­ers will need to en­dorse any merger deal put in front of them with a mas­sive 75pc vote. Just ask Glan­bia how hard it is to achieve agree­ment.

So there will have to be a se­ries of sweet­en­ers in­cluded. A buyer will surely be able to jus­tify an­other €10-€20m on the back of €40m-plus in­vest­ment in new dry­ing fa­cil­i­ties in Ar­ti­gar­van, along with the 20ac yo­ghurt, liq­uid milk and but­ter pack­ag­ing fa­cil­ity at Mon­aghan town.

And that’s be­fore any value is put on the 600m-litre milk pool, and the branded busi­nesses of Cham­pion but­ter and milk, the deal with in­fant for­mula maker, Ab­bott, and the dried-milk busi­ness in west Africa.

Who will be in­ter­ested? There are four main play­ers on the pitch. Aurivo and Dale Farm have pub­licly stated their in­ter­est, and while Lake­land and Glan­bia re­main sch­tum, there can be no doubt­ing that they are do­ing plenty of num­ber crunch­ing be­hind closed doors.

It’s also likely that for­eign com­pa­nies will be in­ter­ested. Fon­terra has a long-stated goal of de­vel­op­ing footholds in the Euro­pean mar­ket.

The Chi­nese can’t be dis­counted ei­ther given their al­ready vo­ra­cious and still grow­ing ap­petite for the western diet. If it ticked all the boxes for a par­tic­u­lar Asian en­tity, they would prob­a­bly have deeper pock­ets than any­body.

But when all is said and done it’s hard to see for­mer Town of Mon­aghan and Bal­lyrashane share­hold­ers vot­ing for an over­seas bid over a lo­cal out­fit that they al­ready know well.

Who will want it most?

Aurivo Let’s start with Aurivo. On the face of it, it may have the most co­gent case for buy­ing LacPa­trick. Geo­graph­i­cally, LacPa­trick would be a good fit, work­ing as a sim­ple ex­ten­sion east of Aurivo’s ex­ist­ing milk pool in Donegal.

In that re­gard, the Ar­ti­gar­van plant is just over the bor­der. But even more cru­cially, Aurivo is one of the few pro­ces­sors in the re­gion that is fac­ing an im­me­di­ate re­quire­ment for ex­tra milk pro­cess­ing ca­pac­ity. While the plan was to build an­other drier at Bal­laghadereen, a su­per mod­ern plant at Ar­ti­gar­van would be a ready­made so­lu­tion. Between Aurivo’s ex­pected in­crease in milk and LacPa­trick’s 600m litres, the plant could be very close to ca­pac­ity.

In ad­di­tion, the amal­ga­ma­tion of LacPa­trick’s liq­uid milk and but­ter busi­ness would be a neat bolt-on for Aurivo which has worked hard at tough­ing it out in that space.

But there are po­ten­tial down­sides. Is it re­al­is­tic to ex­pect the en­tire LacPa­trick milk-pool to move in uni­son with any deal? Some leak­age, á la Glan­bia’s takeover of Wex­ford Creamery, is likely. But could it be more large-scale given the amount of switch­ing that hap­pens nat­u­rally in the North any­way? Maybe even more cru­cially, can Aurivo

LacPa­trick haulier col­lect­ing milk dur­ing the freez­ing con­di­tions

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