2 weeks Ago
Kerry Co-op is to buy the dairy processing business of Kerry Group PLC after the two sides finally hammered out a deal that will significantly alter relations between the global PLC and its founding shareholder. Shares in Kerry Group PLC rose sharply on the news, up 4pc to €90.90 each, despite a weaker Irish stock market overall.
The agreement breaks an impasse over the future of the Irish dairy business, which has been in limbo since a 2021 strategic review when an earlier proposal for the Co-op to buy it for around €800m fell through. Under the terms of the deal announced on Tuesday, a share exchange will also see Co-op members being given €1.4bn of Kerry Group shares in proportion to their current shareholding in the Co-op.
They will then hold those shares directly. The dairy processing business will be bought using the €251m value of the remaining Co-op-held shares plus a €56m bank loan, with the balance of the acquisition funding through debt provided by the PLC, a so-called vendor loan. Kerry Dairy Ireland will be bought in two stages, including 70pc by the end of January next year and the balance by the end of 2034.
The deal has been agreed by the board of Kerry Co-operative Creameries Limited and Kerry Group PLC, subject to ratification by Co-op members. Co-op members will vote on the proposals at a special general meeting at the Gleneagle INEC Arena, Killarney, on December 16. Under the terms proposed, the share exchange will see all Co-op members given new Kerry Group shares in exchange for 85pc of their Co-op shareholdings at a rate of 6.
25 Kerry Group shares per Co-op share currently held. For Irish resident individuals, there should be no upfront tax charge as a consequence of this transaction, and any tax on capital gains should only become payable in the event of a subsequent sale or transfer of the Kerry Group shares concerned, the Co-op board said. Meanwhile, the remaining 15pc of Kerry Group shares held by Kerry Co-op plus additional borrowings will fund the acquisition of Kerry Dairy Ireland in two stages.
Acquiring the dairy processing arm has been a key concern for many Co-op suppliers, who have raised concerns about the price paid for their milk relative to some other processors. For Kerry Group, the sale of the relatively low-margin dairy unit means it further shifts into its higher-margin global flavours and nutrition business. Chairman of Kerry Co-op James Tangney said the proposed deal will ultimately deliver full ownership of one of the leading dairy businesses in the country to members while also, in effect, releasing 85pc of Kerry Co-op’s Kerry Group shares to members to manage themselves.
“Kerry Co-op and Kerry Group have a shared heritage that has helped create value, pioneer change and shape the dairy industry, but we have come to a fork in the road where both organisations require the freedom to grow...
“As direct shareholders in the PLC, members will continue to gain from the group’s progress and, in tandem, the Co-op will focus on ensuring Kerry Dairy Ireland becomes a platform for future growth,” he said. Kerry Co-op currently holds a c.11pc shareholding in Kerry Group, having a value of around €1.
7bn. Following the proposed share exchange, the Co-op will cease to be a shareholder in Kerry Group, with that stake mostly shared out among members..
