Kerry Co-op shareholders will today (Monday, December 16) decide whether or not to proceed with the proposed €500 million takeover of Kerry Group’s dairy division, Kerry Dairy Ireland.
If the deal, which was announced last month, is approved by shareholders it will mark a significant milestone, with Kerry Group moving to become a pure taste and nutrition business and Kerry Co-op regaining control of dairy processing.
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.
Kerry Co-op currently holds an 11% shareholding in Kerry Group with a value of around €1.7 billion.
Kerry Co-op
Under the proposed deal, Kerry Co-op would initially take a 70% stake in Kerry Dairy Ireland (€350 million), with Kerry Group retaining a 30% interest.
The remaining portion of Kerry Dairy Ireland will have to be transferred to Kerry Co-op by 2035.
However, the co-op has stated that it is hoping to have full ownership of the dairy business by the end of the decade.
Kerry Group will be entitled to a fixed dividend of €7.5 million per annum during the period of the joint ownership.
In order to fund the first phase of the deal Kerry Co-op is proposing a share exchange programme which would see members given 85% of their shares directly in the form of Kerry Group shares, worth a total of around €1.4 million.
The remaining 15% – worth around €250 million – would be retained by the co-op to invest in the acquisition of Kerry Dairy Ireland.
The balance would be covered by €56 million in loans from banks and another loan from Kerry Group for an estimated €43 million.
The final 30% stake in Kerry Dairy Ireland will be funded through a 1c/L contribution from milk suppliers from 2026 (€50 million), third party debt (€80 million) and forecasted accumulated cash within the business (€20 million).
The co-op has said that the milk supplier contributions, which will be in place for six years from April to October inclusive, could be deferred in certain circumstances.
This payment will become “convertible loan stock” meaning that suppliers have the option to convert it into co-op shares. In the case where a supplier leaves or retires they will receive their full contribution back.
If the deal is accepted, Kerry Group has agreed to put a €50 million fund in place to resolve the ongoing dispute with suppliers over leading milk price.
This would involve a cumulative payment of 5.4c/L for the years from 2015 to 2020 as per their milk supply contract.
As part of the deal Kerry Dairy Ireland would have a new board structure comprising seven co-op nominees, three Kerry Group nominees, two independent non-executive directors, along with the chief executive of Kerry Dairy Ireland.
Kerry Co-op has said that “the funding model represents a sustainable financial plan that will not overburden the Kerry Dairy Ireland business with debt and retains the ability for the business to invest in growth and to support milk pricing in the future”.
Those against the proposal believe that Kerry Dairy Ireland has been significantly overvalued at €500 million.
They are concerned about the level of debt which will be placed on the new entity and the impact this will have on future milk price.
There has also been disappointment that the leading milk price offer is being linked to the acceptance of the wider deal and that the payment is not being applied to all milk supplied in the period.
Vote
Following weeks of information meetings, debate and discussion, Kerry Co-op is holding a Special General Meeting (SGM) at Gleneagle INEC Arena, Killarney, Co. Kerry at 12:00p.m today.
There are currently 11,906 shareholders in Kerry Co-op, but only some hold voting rights.
The 2,604 A shareholders who are, or who have been in the last five years, milk suppliers, and 2,973 B shareholders, who are former milk suppliers, will be allowed to vote on the proposal.
While the 6,329 C shareholders, the majority of whom became shareholders through inheritance or through commercial activity, do not have a vote under the co-op rules.
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 is no postal vote.
The vote will involve members being asked to consider a resolution to amend the rules of the co-op to allow the for the deal.
The proposed transaction will also require the approval of the shareholders of Kerry Group.
The company is due to hold an Emergency General Meeting (EGM) at the Rose Hotel, Tralee, Co. Kerry, at 2:00p.m on Thursday (December 19).
If the deal secures shareholder approval, both parties are hoping to have the first phase completed by the end of January 2025.