Kerry Co-op shareholders approve purchase of Irish dairy operations

Shareholders in Kerry Co-op have voted by 82% to back the proposed €500m takeover of Kerry Group’s dairy operations.

The vote, held in Killarney on Monday 16 December, needed approval from 66% of those present and voting of A and B shareholders for the takeover to proceed.

In total, there were approximately 5,600 shareholders eligible to vote at the meeting, at which 2,391 attended.

Commenting after the result, chair of Kerry Co-op James Tangney said: "Today’s acceptance commences a journey that will ultimately lead to the full ownership of Kerry Dairy Ireland, one of the leading dairy businesses in the country, while its also releases circa 85% of Kerry Co-op’s Kerry Group shares into the hands of our members to be retained or sold by each of them at a time of their choosing.

“The transaction is transformational for Kerry Co-op and satisfies the diverse aspirations of the vast majority of our members.

"Working in partnership with Kerry Group, the focus of the Kerry Dairy Ireland board will be to transition the business to that of a co-op ethos and build further on the strong commercial platform in place to deliver sustainable returns in the months and years ahead for all our members."

What’s next

The immediate thing that needs to happen is that shareholders in the plc (Kerry Group) will also have to vote to approve the deal. That vote is scheduled for Thursday 19 December in the Rose Hotel in Tralee.

As this vote allows for proxy voting, the attendance is expected to be lower, while the total number of votes cast will be significantly higher.

Considering the strong recommendation from the board of Kerry Group and the advantages for the plc from offloading the dairy operation, Thursday’s vote should be seen as little more than a necessary formality.

Kerry Co-op and Kerry Group have already secured the necessary regulatory approval from the Competition and Consumer Protection Commission (CCPC), with the government body clearing the proposed joint-venture deal on 28 November.

This means that once the plc vote happens on Thursday, the deal can move forward quite quickly.

Both Kerry Co-op and Kerry Group have previously said that the anticipated timing for the completion of phase one of the agreement is “by the end of January 2025”.

Phase one

Phase one involves the payment of €350m by the co-op to Kerry Group, made up of a mixture of approximately 2.9 million Kerry Group shares controlled by the co-op (15% of the co-op’s total shareholding in Kerry Group), €56m in debt from a consortium of four banks and a loan from Kerry Group for the balance.

The completion of phase one will also see the payment of a total of €50m to milk suppliers for the settlement of outstanding claims under the leading milk price arbitration.

This payment has not been without controversy in recent weeks, as it is only being paid for milk supplied under the 2015 contract, rather than all milk delivered for processing.

Both the co-op and Kerry Group may be motivated to complete phase one as early as possible as there may be some stock market dislocation around the inauguration of Donald Trump as US president on 20 January.

Share prices

This is because the key variable remaining is around where the price of Kerry shares will trade ahead of the completion of phase one.

The documents for the deal state that the 2.9 million shares being transferred to Kerry Group will be valued at “volume-weighted average price” of the shares over the 10 days prior to payment.

Many of the documents which have been circulated by both the co-op and Kerry Group put this value at approximately €88 per share, which puts the size of the loan from Kerry Group at around €43m.

As there are 2.9 million shares in the purchase, every €1 move in that volume-weighted average price will mean an increase or decrease in the size of that loan of approximately €2.9m.

In recent days, Kerry shares have traded around €91 each, which would reduce the size of the loan from Kerry Group by approximately €8.7m.

The breakdown would be as follows: 2.9m shares @ €91 each = €263.9m. Adding the already agreed €56m bank loan gives €319.9m, which would leave €30.1m to be financed by a loan from Kerry Group.

Future for Kerry Dairy Ireland

Kerry Co-op is already well under way with the selection process for the six additional directors to sit on the board of the joint venture. James Tangney will be chair of Kerry Dairy Ireland, bringing the co-op representation to seven, for a majority on the 13-member board.

One of the first jobs for that new board will be to get a new milk supply contract in place. The current contract for Kerry suppliers expires in April of 2026, so there is only really one season left in it.

Tangney has said that that new contract should be expected to be offered to farmers by the end of March 2025.

With securing future milk supplies a key challenge for all processors in Ireland, it will be critical that Kerry can, at a minimum, hold on to the farmers it already has.

Tangney also addressed this issue at some of the information meetings held by the co-op ahead of the vote. He said suppliers are free to sign any milk contract they want, but that Kerry would be paying a very competitive milk price.

However, he did admit that whether milk suppliers chose to stay with Kerry or move to another processor would be the real vote by farmers on the future of Kerry Dairy Ireland.