Threat of outside bid tips Co-op
THE emergence of a potential rival to buy Kerry Group’s primary dairy business out from under farmers is tipping Kerry Co-op’s board in favour of doing the €800m deal themselves, the Irish Independent has learned.
The board of Kerry Co-operative Creameries is now expected to ratify a decision to purchase a 60pc majority share in the dairy business at a meeting on Wednesday.
At a meeting yesterday, the Co-op board decided in principle to move ahead with a deal that values the business at €800m.
The purchase, if successful, will result in the business being operated as a joint venture between Kerry Co-op and Kerry Group plc.
The agreement is now expected to move forward to due diligence.
It is understood a key factor behind the decision to move ahead with the long-considered deal was the emergence of a potential third-party buyer for the business looking to strike their own deal with the plc.
Kerry Group declined to comment.
The Co-op’s decision will conclude months of speculation about the disposition of its members, who struggled to achieve consensus on the plan.
The deal will involve the purchase of Kerry Group’s main milk processing and trading facilities at Listowel, Farranfore, Newmarket and Charleville, plus the company’s dairy spreads business at Ossett in West Yorkshire.
It is understood that Kerry Co-op’s 12.3pc shareholding in Kerry Group, which is valued at nearly €2.5bn, will be used to fund the transaction,
Stake worth €2.5bn will be spun out to holders
with shareholders given the option of exchanging their Co-op shares for Kerry Group plc shares.
While the final details of the funding model have to be agreed, it is believed that milk suppliers will be encouraged to invest in a new farmers’ co-op to purchase the 60pc majority stake in Kerry Group’s dairy business.
A haircut on the share transaction, in addition to new borrowings, will complete the financing of the purchase.
The proposed share transaction will be subject to capital gains tax, which will be more attractive to the Co-op’s dry (non-trading) shareholders than an alternative share redemption scheme, which is subject to income tax.
A Kerry Group spokesman said: “Kerry Group as a matter of policy does not comment on rumour or speculation regarding such matters.”
The transaction, if it goes ahead, will leave Kerry Group with a 40pc stake in the new joint venture. However, it is envisaged that Kerry Co-op could buy out the remainder of the business over time.
Kerry Group’s milk processing business has a turnover of around €1bn and delivers profits of close to €75m each year.
Relations between Kerry Co-op and Kerry Group have been severely strained over the last number of years due to conflicting interpretations of a commitment by Kerry Group management to pay Ireland’s “leading milk price”.
There have also been differences within Kerry Co-op over the preferred manner in which shareholders could realise the value of the society’s shareholding in Kerry Group.
Supporters of Kerry Co-op’s purchase proposal view it as “workable compromise”.