Kerry Group plc has today (Tuesday, November 12) confirmed that it has entered into an agreement with Kerry Co-op to sell Kerry Dairy Ireland to the co-op for a total expected of price of €500 million.
As previously reported by Agriland, under the proposed sale, Kerry Co-op will initially acquire a 70% interest in Kerry Dairy Ireland for €350 million, while Kerry Group will retain a 30% interest.
The co-op will have a call option to acquire the final 30% stake at any time from completion of the 70% acquisition until July 31, 2030.
If the call option is not exercised, Kerry Group will also have an option whereby they may require co-op to acquire the final 30% stake exercisable from August 1, 2030 until July 31, 2035.
Kerry Group will be entitled to a fixed dividend of €7.5 million per annum during the period of the joint ownership
The proposed transaction is subject to the approval of shareholders of Kerry Group and Kerry Co-op.
Kerry Dairy Ireland
Kerry Dairy Ireland processes over 1.1 billion litres of milk annually from 2,740 family farms across Munster in six dairy manufacturing facilities across Ireland and the UK.
It has a range of well-known brands such as Cheestrings, Dairygold, EasiSingles, LowLow, Kerrymaid and Charleville.
Kerry Dairy Ireland, which employs over 1,500 staff and exports to over 58 countries, also comprises a dairy ingredients business, including functional dairy proteins, nutritional dairy bases and cheese systems.
The business operates 31 agri- services stores under the brand name “Farm & Home Store”, across Kerry, Limerick, Clare and north Cork, as well as a feed mill in Farranfore.
For the fiscal year 2023, Kerry Dairy Ireland generated revenue of €1.28 billion (FY2022: €1.5 billion) and earnings before interest, taxes, depreciation, and amortization (EBITDA) of €53.4 million (FY2022: €70.7 million).
If the deal secures the approval of shareholders, Kerry Dairy Ireland will have a new board structure “reflective of the ownership arrangement” with seven nominees from the co-op and three from Kerry Group.
The business would also retain the existing Kerry Dairy Ireland management expertise “ensuring a seamless transition to full co-op ownership in due course”.
Shares
To facilitate the proposed transaction, Kerry Co-op is recommending to its members a share exchange whereby all co-op members will be given new Kerry Group shares in exchange for 85% of their co-op shareholdings; at a rate of 6.25 Kerry Group shares per co-op share currently held.
The co-op said 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 Kerry Group shares held by Kerry Co-op circa 15% will be re-invested, with additional borrowings, to acquire Kerry Dairy Ireland in two stages, in which all Co-op members will participate, retaining all current rights in the same proportions as A, B and C shareholders of the Co-op.
The co-op said that acquiring Kerry Dairy Ireland will give the co-op ownership and control over the region’s milk processing assets, together with valuable consumer brands, “which are critical to securing the future of dairy farming families in the region”.
Kerry Co-op currently holds an 11% shareholding in Kerry Group having a value of around €1.7 billion.
Following the proposed share exchange, the co-op will cease to be a shareholder in Kerry Group, the value of the Co-op’s current c.11% Group shareholding will in effect, be redeployed as follows:
- 85% (having a value of c. €1.4 billion as at November 8, 2024) will, through the share exchange, be held directly by co-op members, “putting substantial value into the hands of co-op members alongside future dividend entitlements from Kerry Group”;
- 15% (having a value of c. €251 million as at November 8, 2024) will provide equity finance for Co-op’s acquisition of a 70% interest in Kerry Dairy Holdings.
The co-op said that €56 million of the debt finance requirement will be provided by third party banks with the balance of the debt finance required – which will vary depending on Kerry Group’s share price in the lead up to completion – being funded by a loan from Kerry Group for an estimated €43 million.
Funding
The co-op said that funding for the final 30% stake in Kerry Dairy Ireland will also be a mix of equity and retained cash in the business and debt.
The co-op added that this funding model represents “a sustainable financial plan that will not overburden the business with debt and retains the ability to invest in growth and to support milk pricing”.
With regard to the de facto spin out of shares, the co-op said that Kerry Group shares to the value of €1.4 billion as of November 8, 2024 will be held directly by all co-op members.
The co-op said that this will put “substantial value into the hands of members alongside a potential future increased income stream from Kerry Group share dividends”.
“All co-op members will be able to trade the Kerry Group shares received by them at a time of their individual choosing and will not be reliant on a grey market for co-op shares or redemption schemes run twice yearly.
“The proposal gives all members more flexibility in managing their share value and solves an issue for many who have been seeking a mechanism to access the majority of the value of their interest in co-op shares,” the co-op said.
Following the completion of the first phase of the transaction, Kerry Group will establish a €50 million fund “for the resolution of the ongoing dispute and related claims and arbitrations between Kerry Creameries Limited and certain milk suppliers”.
Separate communications with further detail on this fund will be issued by both the co-op and Kerry Creameries Limited to milk suppliers.
Kerry Group
An extraordinary general meeting (EGM) of Kerry Group is expected to take place on Thursday, December 19, 2024 to allow shareholders to vote on the proposed transaction.
Edmond Scanlon, chief executive officer of Kerry Group, said that the proposed agreement represents “a significant step in Kerry’s 50 year journey”.
Subject to approval, Kerry Group said that the first phase of the transaction is expected to complete by the end of January 2025.
Kerry Group said that the proposed transaction will have a “positive impact on Kerry’s overall financial metrics”, with an enhanced revenue volume growth profile, combined with a step change in Kerry’s EBITDA margin profile and an improved overall sustainability profile.
Given the transaction structure, the proposed transaction will result in a minimal dilution to Kerry’s adjusted earnings per share of around 2% in the first year post transaction, the company said.
“The proposed transaction will result in a global leader in taste and nutrition solutions and an end-to-end industry leader in dairy.
“Both businesses are perfectly positioned for success, thanks to the dedication and extraordinary contribution of our people over the years,” he said.
“On completion, Kerry will become a pure play global business to business taste and nutrition company, with sustainable nutrition at its core, while also supporting our financial objectives of continued market outperformance, strong margin progression, and delivering greater returns for our shareholders,” Scanlon added.
Kerry Co-op
Kerry Co-op said that the proposed transaction will only proceed if approved by the required majority of the co-op’s A and B shareholders.
A Special General Meeting (SGM) of the co-op will take place at 12:00p.m on Monday, December 16, 2024 at the Gleneagle INEC Arena, Killarney, Co. Kerry.
An information brochure with details of the proposal will be distributed to co-op members in the coming days and will also be available on the co-op website.
Ahead of the SGM, Kerry Co-op said that it “will engage extensively through a series of local meetings with members”.
Commenting on the proposed joint venture, James Tangney, chair of Kerry Co-op said:
“We are very pleased to have reached an agreement that will ultimately deliver full ownership of one of the leading dairy businesses in the country, while also, in effect, releasing c.85% of Kerry Co-op’s Kerry Group shares into the hands of our members to be retained or sold by each of them at a time of their choosing.
“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 in a manner best suited to the needs of their stakeholders.
“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.
“It will also give farmers a greater voice in a business that is critical to their farming futures,” he said.