The chair of Kerry Co-op James Tangney had to appeal for civility at one point during an information meeting for shareholders in Co. Limerick last night (Thursday, December 5).
The event in Adare marked the final in a series of 14 information meetings held by the co-op on its proposal to buy Kerry Group’s dairy business, Kerry Dairy Ireland, for €500 million.
Kerry Dairy Ireland processes over 1.1 billion litres of milk annually from 2,740 family farms across Munster.
It has seven production facilities across Ireland and the UK and has a range of well-known consumer brands such as Cheestrings, EasiSingles, LowLow, Dairygold spread and Charleville.
The business, which has a forecasted revenue of €1.3 billion for 2024, employs over 1,500 people and operates 31 agri-services stores across Kerry, Limerick, Clare and north Cork.
Jim Woulfe, the advisor to the co-op board, again emphasised that a comprehensive programme of diligence has been undertaken on the proposed transaction.
If the deal is approved by shareholders, Kerry Co-op would initially take a 70% stake in Kerry Dairy Ireland (€350 million), with Kerry Group retaining a 30% interest.
The co-op would have a call option to acquire the final 30% stake in Kerry Dairy Ireland at any time until mid-2030. The full transfer of the business to Kerry Co-op must be completed by 2035.
The meeting heard that it is the intention of the co-op to have 100% ownership of the dairy processing business in the next 5-6 years.
The co-op would fund €250 million of the initial cost through a share exchange programme involving all 11,906 Kerry co-op members.
Kerry Co-op
When the floor was opened for a lengthy questions and answer session, several shareholders who are opposed to the deal questioned the valuation which Kerry Co-op has placed on Kerry Dairy Ireland.
They also raised concerns about the level of debt being undertaken by the new entity and the impact of reduced milk volumes on the business in the future.
At certain points during the questions session, emotions ran high among some shareholders, resulting in the Kerry Co-op chair James Tangney appealing for everyone to be “civilised”.
Simon MacAllister, from EY, told the meeting that the €500 million valuation is based on a multiple of a four-year average (2022-2025) of earnings before interest, taxes, depreciation, and amortisation (EBITDA) of €71 million.
The meeting heard that the forecasted EBITDA for the business in 2024 is €77 million, compared to €53 million last year, which was a difficult year for the entire dairy sector.
He said that the purchase price is capped at €500 million, but can decrease if the business underperforms and does not reach the forecasted EBITDA.
MacAllister said that Kerry Dairy Ireland is “a very, very strong business” and has been stress tested from a number of perspectives in its financial modelling, including a drop in EBITDA and milk volumes.
He said that the structure of the deal means that the level of debt being put into the business is “sustainable from day one”.
Leading milk price
As part of the deal being accepted, Kerry Group has agreed to put a €50 million fund in place to resolve the outstanding leading milk price dispute which has been subject of arbitration.
While the co-op board again stated that it was unhappy that the issue was being linked to the wider deal, the meeting was told that the 5.4c/L cumulative payment from 2015 to 2020 inclusive, represented a good result for suppliers.
One shareholder said that he would be canvassing for a no vote unless the payment was made on all milk volumes, as opposed to guaranteed volumes (EU quota plus 20%) as per the milk contract.
James Tangney told the meeting that the co-op board has requested Kerry Group chief executive Edmond Scanlon to “top-up” the payment for all milk supplied in the period.
In response to concerns about the processing plants, Jim Woulfe said that there was intensive diligence carried out on all of the facilities and that any shortfalls identified are being addressed by Kerry Group.
When asked about emissions, Woulfe said that Scope 3 emissions are a “collective problem” for the entire dairy processing sector.
He said that in the case of Kerry Dairy Ireland, 95% of Scope 3 emissions are “inside the farm gate”, pointing to the importance of the Kerry Project Evolve sustainability initiative.
Vote
The proposal will be subject to approval by Kerry Co-op A and B shareholders at a Special General Meeting (SGM) to be held at the Gleneagle INEC Arena, Killarney, Co. Kerry at 12:00p.m on Monday, December 16, 2024.
There are currently 2,604 A shareholders (milk suppliers) with 47% of the voting rights and 2,973 B shareholders with 53% of the voting rights in Kerry Co-op.
There are 6,329 C shareholders with a 36.9% ownership of Kerry Co-op, but who have no voting rights.
The proposed transaction will only proceed if approved by the required majority (66%) of the co-op’s A and B shareholders who are present at the SGM; there will be no postal vote.
Kerry Co-op will be running bus services to the Killarney meeting from across the catchment to facilitate those who want to attend.
James Tangney concluded last night’s meeting by appealing to shareholders to attend the SGM, “whether you’re voting yes or no”.
The Kerry Co-op chair said that he and the board “stand over the figures” presented to the shareholders. He acknowledged that the deal “can’t suit everybody”.
“You have a choice; it’s not a case of vote no for another go, there is no other go. You have one choice on December 16, go to Killarney and exercise your vote,” he said.