Kerry dairy business buyout proposed

A complete buyout of the Kerry Group dairy business is on the table, the Irish Farmers Journal can reveal.

If a deal is struck, a new joint venture (JV) company between Kerry Co-op and Kerry Group could buy the whole dairy business outright from Kerry Group within three years. Up to now, no timeline for a 100% purchase of the dairy business had been floated.

The action could put the JV deal at risk

Reports suggest that the Kerry Co-op bid, due this Friday, for its share of the new JV company will be in the region of €625m to €650m.

‘Leading milk price’

Meanwhile, former Kerry Co-op chair James Doyle is restarting arbitration proceedings on the “leading milk price” issue against Kerry Group. The action could put the JV deal at risk.

Doyle said “this is not a new case. It’s a follow-on from the previous arbitration proceedings”.

He said he has the backing of the co-op board, but that has not been confirmed by the board.

Joint venture deal

The board of Kerry Co-op has been meeting regularly over the last week to try to finalise details on the proposed JV with Kerry Group.

Kerry Co-op board advisory documents, seen by the Irish Farmers Journal, suggest that legal agreements are being drafted to finalise a bid for the dairy processing business and create a new JV, initially owned 60% by Kerry Co-op and 40% by Kerry Group.

However, the documents note that agreement has yet to be reached between the two sides.

We understand that the Kerry Co-op offer has to be submitted by Friday of this week. We also understand that co-op shareholder approval will not be sought. The IFA has said farmer consultation is necessary.

Our understanding is that if the JV deal goes ahead, this could end the leading milk price issue, making the reopening of arbitration unnecessary, but views differ on this

The leaked document suggests that the new company is agreeing to buy the whole dairy business outright within three years. It also suggests that any share conversion can only be a part of the funding structure.

Our understanding is that if the JV deal goes ahead, this could end the leading milk price issue, making the reopening of arbitration unnecessary, but views differ on this.

The Irish Farmers Journal understands that an additional milk price top-up offer – which some say is in the region of 5c/l – has been made by Kerry Group as part of the initial JV deal.

However, we understand that this milk price top-up would be conditional on removing any future inclusion of milk price terms.

If the details in this advisory document are agreed, it is suggested that Kerry Co-op will buy into 60% of a holding company (the JV company) for cash with the right in three years’ time to buy the remaining 40% for cash at the same original bid valuation.

If this was the case, the JV company would get the five manufacturing sites, the feed mill and 29 agri stores, along with the staff in each of these facilities. The name “Kerry” would not go with the JV, but brand names such as Dairygold and Charleville would move to the JV. Whether management moves to the JV is as yet undecided.

Importantly, the new JV company would agree to contract-manufacture ingredients exclusively for Kerry Group for five years.

After this, the new company [the JV] would be restricted from competing with Kerry Group customers for two years. This could pose a big risk for any new business.

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Clock ticking on Kerry joint venture deal