Kerry Co-op shareholders to receive letter on ‘spread of misinformation’

AgriLand understands that a letter will be issued next week to Kerry Co-op shareholders following the spread of “significant misinformation” at the co-op’s annual general meeting (AGM).

At the AGM, the board of the co-op was put under pressure by shareholders to spin out their shares in Kerry Group – which represent an estimated value of €2.2 billion.

The meeting, which took place in Tralee in Co. Kerry on June 13, was reportedly attended by almost 600 people.

Also Read: Board of Kerry Co-op ‘lambasted’ at AGM

A number of shareholders who spoke at the meeting called for a “a total spin-out” of the shares, which represent a 13.7% stake in Kerry Group. Shareholders who spoke to AgriLand indicated that they believe that the co-op has “lost its purpose” and that a spin-out of the shares must take place.

As it stands, there are approximately 13,500 shareholders in Kerry Co-op. Meanwhile, one co-op share represents 6.12 shares in Kerry Group – which are valued at €93 each (as of close of business on July 6, 2018).

In a draft letter – seen by AgriLand – which is expected to be sent out to shareholders next week, it is outlined that a “special board meeting” was called with the co-op’s tax advisers, Deloitte, to discuss the current tax position regarding section 701 of the Taxes Consolidation Act 1997 (s701) – which facilitates share exchanges or spin-outs.

In the past, spin-outs of Kerry Group shares to co-op shareholders have been undertaken on a tax-free basis due to tax relief being available under s701.

But, according to documents seen by this publication, a future spin-out based on “current facts and circumstances” would not qualify for relief under the s701.

The document cites the “evolution of the membership base” of Kerry Co-op (increase in non-farmer members since the last spin-out in 2013) as the basis under which this outcome was reached.

‘Not as simple as many make it out to be’

Continuing, the letter – which is purportedly signed by the chairman of Kerry Co-op, Mundy Hayes – said: “The matter is not as simple as many make it out to be and there are issues that have to be clarified with our legal advisers and the agreement of the Revenue obtained.

“The objectives of Kerry Co-operative Creameries, agreed and signed-off on by the board in 2017, were that the co-op should continue as an entity, should be relevant to its members and should have liquidity in its shares.

We will continue to work on this, taking guidance from what Revenue has told us – but the time frame will be considerable to reach a satisfactory conclusion.

“We will be issuing you with a consultation document on the future of the co-op – but the directors wanted to bring clarity on the taxation issue, because the misinformation circulating at the AGM was causing some distress to shareholders,” the draft letter concluded.

Latest advice

As well as the letter, it is expected that Kerry Co-op shareholders will be issued with the latest advice from Deloitte – in order to clear up any concerns relating to a spin-out following the recent AGM.

In order for a spin-out to qualify for relief under s701, Kerry Co-op would have to be considered an “agricultural society” for Irish tax purposes, documents seen by AgriLand stated.

This means that a majority of the co-op’s members – at least 50% – would have to be “mainly engaged in husbandry” and that a majority of members would have to “derive the principle part of their income from husbandry”, the documents added.

It is thought that, at present, Kerry Co-op would not qualify for relief under s701. However, it is understood that a number of avenues are being considered and examined which could potentially make a spin-out eligible for s701 relief.

As part of an “indicative timeline” seen by this publication, it is suggested that a s701 spin-out to all Kerry Co-op members could take place in 2019. But this would be subject to certain matters being agreed with legal advisors and the Revenue.