Irish co-ops lose €8m on sale of IPL Plastics

After years of false dawns, shareholder disputes and disappointing returns, the ill-fated story of Irish investment company One51 looks to have finally come to an end.

Fifteen years since the Irish Agricultural Wholesale Society (IAWS) was renamed as One51 back in 2005, the company, which is now known as IPL Plastics, is set to be sold to Chicago-based private equity group Madison Dearborn Partners and the company’s existing main shareholder, Quebec-based pension fund CDPQ, as part of a C$555m (€347m) deal.

But what does it mean for the Irish shareholders including farmers, Irish co-ops like Glanbia, Kerry, Lakeland, Dairygold and Fane Valley, along with a number of high-net-worth individuals like beef baron Larry Goodman, who own roughly 45% of IPL Plastics between them?

When you include the company’s net debt of €266m along with the sale price of €347m, this values IPL Plastics at just under eight times its earnings (EBITDA) of €77.5m last year

On the face of it, Madison Dearborn and CDPQ appear to be acquiring a fine business that has scale and healthy profit margins at something of a bargain. When you include the company’s net debt of €266m along with the sale price of €347m, this values IPL Plastics at just under eight times its earnings (EBITDA) of €77.5m last year.

Considering that most businesses in this sector typically trade for multiples of 10 times earnings, this does look like a very good deal for the Chicago-based private equity group and CDPQ. It also underscores how selling a business in the midst of a once-in-a-century pandemic may not be the shrewdest move by the company on behalf of its shareholders.

The deal announced last week will have left a sour taste for many Irish shareholders

In saying that, many Irish shareholders may finally be relieved to be done with IPL (One51) as it is an investment that has caused quite a few headaches over the last 15 years instead of generating any meaningful returns.

Yet privately, the deal announced last week will have left a sour taste for many Irish shareholders and equates to significant losses on their original investment, particularly after the promises that were made for much healthier returns once the company floated.

Valuation

The deal, which is almost certain to go ahead unless the company can find a higher offer in the next month, values IPL Plastics at C$10 per share. When currency translation costs are factored in, this share valuation of C$10 equates to a price of roughly €1.25 for an old One51 share.

Many Irish shareholders will have kept their IPL (One51) shares at a book value of €2 per share or even higher in some cases, meaning steep losses on their original investment.

The Irish Farmers Journal understands an offer of C$13.50 per share (equal to its original IPO price) was on the table back in February but the outbreak of the COVID-19 pandemic scuppered this offer, which would have valued the old One51 shares at about €1.80 and still be below the breakeven point for many Irish investors.

A number of the Irish co-ops will feel particularly aggrieved having invested some €78m into the company back in 2006 and 2007. The co-ops own roughly 20% of the shares in IPL today and are set for a cash payout of just under €70m from the deal. While most co-ops will have written down the value of the shares on paper, the reality is that Irish co-ops will lose a combined €8m on their original investment in the company.

It’s understood Kerry stumped up as much as €27m in cash back then for shares at a price range of €3 to €5

However, some co-ops will be hit harder than others. Kerry Co-op, in particular, had invested heavily in One51 back in 2006 and 2007. It’s understood Kerry stumped up as much as €27m in cash back then for shares at a price range of €3 to €5.

When their original free shares are included, Kerry’s book value of its total shares in One51 dilutes to a cost of roughly €2 per share. Based on the €1.25 share price equivalent for an old One51 share, this means Kerry alone will have lost in excess of €2m on its original investment.

Larry Goodman will also be licking his wounds after a rare loss for his usually shrewd investment instincts. Via his investment company, Vevan, Goodman is thought to own as much as 5% of the shares in IPL Plastics.

The beef baron is understood to have invested in One51 at about €4 per share back in 2007 and also invested via a convertible loan note, which has since converted to shares. Similar to Kerry, the total cost per share from investing in One51 is believed to be around €2 per share for Goodman, meaning he has probably lost over €2m on his original investment.

Many Irish farmers will also have invested in One51 in a private capacity back in 2006 and 2007 at prices as high as €5 per share. Again, these private investors will be feeling the pinch of an investment that has failed to pan out the way it had been hoped after the company finally floated on the Toronto stock exchange in 2018.

While there are plenty of losers from investments made in IPL (One51), there have also been winners. Looking back on it, the rapid investment and subsequent exit by Dermot Desmond in the company is quite a brilliant piece of business.

Following a takeover approach for One51 at €1.80 per share from private equity group CapVest, the billionaire financier hoovered up over 25% of the shares in One51 in 2015 at a cost of about €1.85 per share to see off the CapVest takeover bid.

It’s understood Desmond then vetoed the planned stock market listing in Dublin and frustrated CDPQ to the point that he offloaded his entire stake in the business to the Canadian pension fund for a reported €2.80 per share – a significant premium.

Perhaps what will irk Irish investors most is that another takeover approach by CapVest – this time at €2.50 per share – was made in 2017. However, this second takeover approach was blocked by CDPQ, allegedly out of fears an Irish takeover would lead to job losses in Quebec.

And while Irish shareholders had hoped the stock market flotation of IPL (One51) would finally bring about a rise in the asset value of their investment, the opposite happened

Had it gone ahead, the CapVest offer would have allowed Irish shareholders to exit their investment in One51 at a price close to what Desmond received.

Alas, CDPQ and the board brought the company down a different path that ultimately saw it float on the stock exchange in Toronto. And while Irish shareholders had hoped the stock market flotation of IPL (One51) would finally bring about a rise in the asset value of their investment, the opposite happened, with the company’s shares falling steadily over the last two years.

Since its IPO, shares in IPL Plastics have fallen from an original price of C$13.50 to lows of just C$2.80 in recent months. This hammering of IPL shares set the scene for Madison Dearborn and CDPQ to pounce with their offer of C$10 per share.

In the end, the sale of IPL brings to a close another chapter in the history of IAWS, the co-op originally set up in 1897 to supply chemicals and fertiliser to Irish co-ops. Just Aryzta and Origin Enterprises now remain of the three plcs that spawned out of IAWS in the mid-2000s.