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On Monday night, Tipperary Co-op suppliers gathered in Ballykisteen to hear from the board of their co-op about the details of the proposed merger with neighbouring Arrabawn.
Chair William Ryan opened the meeting by saying that Arrabawn is a perfect fit for Tipperary Co-op.
He described the potential deal as a “huge opportunity for both sets of suppliers”.
He highlighted that every shareholder would maintain their shareholding value in the new entity and that Tipperary farmers would have a huge say in the proposed operation.
He said the scale of the merged co-ops would give protection for Tipperary shareholders into the future.
He acknowledged the dissatisfaction in the room with the milk price “over the past few years” and said that “the board hugely appreciate the support from suppliers” adding that it “stood to us that farmers were behind us in negotiation of the merger”.
Vice-chair William Meagher gave a presentation on the governance of Arrabawn Tipperary Co-op, saying that it would be based on the valuation of 75.5% to Arrabawn and 24.5% to Tipperary.
Rule book
Should the deal be approved, then the new co-op would be governed by a new rule book developed by the Irish Co-operative Oganisation Society (ICOS), which would be circulated to members ahead of the 7 November vote.
An interim board would be in place for two years, with a new board elected by March of 2027.
Interim CEO John Hunter said that the business strategy would be based around streamlining both operations.
While he didn’t put a figure on the potential cost savings, he said there would be efficiencies in integration of management and administration, while there would be greater opportunities to achieve increased returns by putting milk into the most profitable products.
He said that while there are advantages in increased volumes and optimisation of plant operations, there was also financial advantages when it comes to dealing with Tipperary’s debt burden.
The merger would increase headroom on Tipp’s loan facilities and give the chance to reduce the interest rate charged by banks from the current level of 7.6%.
One speaker, who was against the deal being approved, described the valuation as a 'complete sellout'
They said the new entity would have a 15% shareholding in Ornua.
On milk price, he said that both sets of suppliers would get the same milk price. He said that the aim is to have a “profitable, sustainable business capable of paying a competitive milk price”.
All three presentations were met with silence from the audience of almost 200 suppliers.
Disappointment
When the meeting was open to the floor, the gathered crowd had several issues they wished to address.
There was considerable disappointment expressed on the comparative valuation of the two operations, with several questions on why it was so low, with one supplier suggesting that it should be closer to 60:40.
One speaker, who was against the deal being approved, described the valuation as a “complete sellout” and that it was a “very raw deal” and another asked why the board was doing this deal when the co-op was at such a weak point.
Hunter said that the valuation was based on earnings for the Tippagral French cheese operation and a net asset value for Tipperary’s Irish operation. The value was calculated net of debt.
There were also questions on how the debt would be repaid, with Hunter saying that in the new entity debt would be less of a burden and that through cost savings, it should be possible to get debt down to two times EBITDA (earnings before interest, taxes, depreciation and amortisation).
It is currently more than six times EBIDTA for Tipperary Co-op. He suggested that the reduced debt burden would lead to a potential reduction in the applicable interest rate on that debt by 1.5 percentage points.
Single offer
A key topic of interest among suppliers was why they were presented with only a single offer. They repeatedly questioned the board on details on any other offers they had received and whether those offers had been pursued.
Meagher said there had been interest from two other co-ops - which he later named as Dairygold and Tirlán - but said either the offers failed to materialise or did not have sufficient detail to be pursued and that Tipperary was already in exclusive talks with Arrabawn by the time the Tirlán offer arrived.
The size of the losses are telephone numbers
When pushed further on the issue, Ryan said they employed PWC to assess the communication from Tirlán, but that the contents of the letter were too vague to give a recommendation.
The board was accused of ignoring the other offers, while Ryan insisted that they were not able to entertain new suitors as they were, at that stage, already in exclusive talks with Arrabawn.
Trust
One speaker raised the issue of trust in the board, highlighting what they had been told previously about the investment in the plant in Tipperary town and how the debt from that investment would be paid down quickly through the sale of 30,000t of product over three years, they asked: “what happened?”
Ryan answered that “the facts are, that didn’t turn out as good as was said”.
Comments and questions from the floor then turned to the issue of milk price and how long Tipperary had been towards the bottom of the milk league.
Several suppliers spoke of the tens of thousands of euro they had lost over the years through supplying Tipperary.
“The size of the losses are telephone numbers,” one said.
However, there were several who spoke in favour of the merger with Arrabawn.
The biggest round of applause of the night came for one of the last speakers who reminded the room about Tipperary’s struggles in 2018 when a salmonella outbreak closed the co-op’s dryer and how their neighbour to the north of the county took their milk when some other processors “didn’t want to see one of our trucks in their yard”.
“I think it’s time to move forward,” the speaker added. “There is an opportunity for us as dairy farmers to improve our position… to come together and have one of the largest co-op-owned societies, to cement ourselves for the years ahead.”
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