Hundreds attended an information meeting on Kerry Co-op’s proposed €500 million purchase of Kerry Group’s dairy division, Kerry Dairy Ireland organised by the Munster Dairy Producer Organisation (MDPO) last night (Monday, December 9).
If the proposed 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.
Kerry Dairy Ireland has seven production facilities across Ireland and the UK and has a range of well-known consumer brands such as Cheestrings, EasiSingles and LowLow.
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.
Kerry Dairy Ireland
Brian Leslie, an independent financial advisor, told the meeting in Newcastle West, Co. Limerick, that, in his opinion, the €500 million valuation placed on Kerry Dairy Ireland is “crazy”.
Leslie, who is a Kerry Co-op B shareholder, said that he has “a genuine interest in seeing dairy farming prosper in the south-west of Ireland”.
He claimed that “an overly eager” Kerry Co-op board wants to buy Kerry Dairy Ireland “regardless of the costs”.
In his presentation, Leslie, who runs several financial companies, outlined how his valuation for Kerry Dairy Ireland stands at €250 million, which is half the co-op valuation.
He said this figure is based on four times the average earnings before interest, taxes, depreciation, and amortisation (EBITDA) of €62 million for the company in the years 2022 (€71 million) and 2023 (€53 million).
He said that profit and growth prospects for the business mean that Kerry Dairy Ireland should be valued “lowly on an EBITDA multiple”.
He also pointed to the wider issues facing the dairy industry, including environmental challenges, declining milk volumes, increasing costs and surplus processing plants, as reasons for the lower valuation.
Kerry Co-op has stated that its €500 million valuation is based on a multiple of a four-year average (2022-2025) of EBITDA of €71 million.
Leslie claimed that the 15% of shares being used by the co-op to reinvest in buying Kerry Dairy Ireland is “too high” and should be 9%, based on his lower valuation of the company.
He also claimed that the price paid for Kerry Dairy Ireland will “significantly” reduce milk price for the next 15 years, due to the debts and costs being placed on the business at the current valuation.
Leslie told the meeting that shareholders should vote no on the proposed deal, “press pause” and give the Kerry Co-op board a mandate to go back and renegotiate with Kerry Group.
“A bad deal is never a good deal, you only decide once,” he said.
Leslie said that a €250 million offer is “still a fantastic deal for the plc”, but it gives dairy farmers “a reasonable, sustainable chance going forward”.
“There is this idea that if we don’t vote this through the world will end, as if KDI will disappear tomorrow morning. As Glanbia has shown us, vote no, you will get a better deal,” he said.
The meeting was also addressed by Diarmaid Mac Colgáin of Concept Dairy who presented an overview of the Irish milk processing sector.
Mac Colgáin said that the most important issue for Kerry Co-op shareholders is that they understand the proposed deal.
Both speakers urged all shareholders to seek their own independent financial advice on the proposal ahead of voting.
MDPO
In April, the Department of Agriculture, Food and the Marine (DAFM) granted official approval to the Munster Dairy Producer Organisation, which is Ireland’s second dairy producer organisation (PO).
MDPO currently has around 300 members with a combined milk pool of around 200 million litres.
The chairperson of the MDPO interim council is James Doyle who is from Beaufort, Co. Kerry.
Doyle is a former chair of Kerry Co-op and is the farmer who represented suppliers in the arbitration case on leading milk price against Kerry Group.
Kerry Group has proposed €50 million fund to resolve the ongoing leading milk price dispute if the overall deal is accepted.
Doyle said he would have preferred that this offer was not linked to the deal and that the 5.4c/L cumulative payment to suppliers covering 2015-2020 should be applied to all milk supplied.
The MDPO chair said if the deal is not accepted he is “prepared to solider on” with the arbitration process, if that is what suppliers want.
Among those who spoke from the floor was Seamus Crawford who recently resigned from the Kerry Co-op board as he could not support the proposed deal.
He also believes that Kerry Dairy Ireland is being overvalued at €500 million, adding that Kerry Co-op is the “only customer for this business”.
Vote
James Doyle concluded the meeting by stating that he would not tell anyone how to vote on the deal, but urged those present to “make an informed decision”.
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 (former milk suppliers) 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.