Rumblings of dissent following Kerry Co-op consultation

There have been rumblings of ruption among shareholders of Kerry Co-op following a recent shareholder consultation document sent out to members within the co-operative.

A number of shareholders of Kerry Co-op expressed their opposition to the co-op’s two tabled options to set course for the future of the co-operative.

These were: to purchase Kerry Agribusiness from Kerry Group; or the option to “engage with another co-op” regarding a potential merger or alignment for milk processing, with some shareholders pushing instead for a spin-out of the co-op’s shares in the Kerry Group company.

The shareholders in question, who have come together as Kerry Co-op Shareholders Alliance, have questioned how many respondents to the survey had requested a spin-out of shares in the co-operative to convert into Kerry Group shares for the members in question.

Consultation results

Of the 1,507 people who voted on the two options tabled by the co-op board, 44% voted against the two proposals to move in either direction. A “few hundred” of these gave comments relating to one of the proposals, with reasons including: alternative suggestions for future strategy; satisfaction with current proceedings; seeking to have tax issues dealt with before any further move; and comments relating to a spin-out in some form.

A further 29% – 435 members – specifically sought a full spin-out of the co-op. This would see the co-op’s €2.3 billion worth of Kerry Group shares spun out among holders.

A third group of 405 people voted and gave comments relating to both options, with 76% in favour and 24% against.

A total of 307 people out of the 1,507 respondents supported buying Kerry Agribusiness in the consultation.

Furthermore, 336 of the respondents supported the co-op going into a merger or joint venture with another co-operative.

Speaking to AgriLand, Kerry Co-op shareholder and dairy farmer David Scannell – who is a member of the shareholder alliance – explained:

“We want each shareholder to get in the post, of the 1,507 who voted, how many picked yes for the agri-business and how many picked yes for the merger; and out of the comments, what percentage of people who commented asked for a full spin-out.

As a Kerry Co-op shareholder, I am extremely concerned for my investment and that of my fellow shareholders in Kerry Co-op due to the decision of the board to become an agri trading and milk processing co-op using the funds of the 13,000 shareholders.

Scannell questioned how an acquisition of the agri-business would be funded, what levels of borrowings would be required and what levels of profits would be like.

Scannell said that he wanted to know the number of respondents who sought a spin-out of some degree in comments submitted in the consultation.

Co-op response

Secretary of Kerry Co-op Thomas Hunter McGowan spoke to AgriLand, responding to the alliance, stressing that the consultation was only to get shareholder insights.

“We’re preparing a strategy; it’s a consultation document as a process of putting our strategy together. The purpose is we’re putting a strategic document together which: takes into account market conditions; takes account of economic conditions; takes into account trends in the industry and how things are developing.”

Hunter McGowan said that the consultation was done to get shareholder insights to develop a strategic plan; it was “not a vote or a start or end point to anything”, he stressed.

“We sent out 6,750 of these forms and we got back 1,507; so about a 22.5% return from our shareholders; about 5,000 people didn’t reply.”

He said that the majority of shareholders in the group of 405 who submitted comments were very cautious on how to proceed, adding that even if it did seem to make economic sense it still requires a 60% approval of milk-supplier or former milk-supplier shareholders at a special meeting before anything would proceed.

On why the agri-business option was explored, the co-op representative said: “In 2002, we were given the option of buying certain options from Kerry Group – primarily the milk assembly, the seed mill and the stores in the Kerry Agribusiness.

“And that expires in January 2019. So we’ve now reached the end of that line and nobody has done anything about it so far so we have to exercise the option.

“Now, what exercising the option means is that we trigger a process of doing a full due diligence on the evaluation of the agri-business elements.”

On the matter of a spin-out, the secretary said that the co-op is currently in talks with tax advisors, Kerry Group plc and solicitors are trying to devise a scheme to provide for shareholders “which might very well satisfy a lot of the requirements of the people who are looking for a spin-out”.

There will be proposals put forward in the new year to address that which “will address this as an issue for people”, Hunter McGowan said.

“The board are not in any way opposed to a spin-out or share transfer,” he said, adding that the difficulty at the moment is that the co-op no longer qualifies for the most favourable terms for tax due to the changing make-up of its membership with non-farming shareholders now outnumbering the dairy farming members.