Building the Kingdom
In February 1986, shareholders of Kerry Co-operative approved their directors’ recommendation that Kerry Co-op should seek additional financial investors.
Essentially this involved the formation of a public limited company (Kerry Group plc) and as a consideration 90 million ordinary shares in Kerry Group plc were issued to the co-op.
This left the co-operative with a controlling 80% stake of the plc. The plc shares initially floated on the Irish stock exchange at an equivalent price of €0.83.
By 1993, the share price in Kerry Group had increased to €3.23 and a decision was taken to return some of this value to co-op shareholders. This was to be one of seven major share spin-outs that saw Kerry co-op reduce its shareholding in the plc from 80% in the early 1990s to less than 14% today. Since 1993, 64.5m plc shares have been transferred from Kerry co-op to its members.
In the last decade alone, Kerry co-op has spun-out more than 17% of its shareholding in the plc, or close to 34m shares. Taking the average share price of Kerry Group plc in each of the spin-out years over the last decade, close to €1bn in equity has been transferred from Kerry co-op to its shareholders.
During the same 10-year period, Kerry plc has paid dividends to the co-op of some €100m. At the current share price of €65, Kerry plc is valued at €11.5bn.
It is important to understand that Kerry co-op shares are not traded publicly on a stock exchange, but are traded on what is known as the grey market, which is unregulated. This is where stockbrokers match potential buyers with sellers and a price is agreed or set that allows shares to be easily traded.
The issue arises when it comes to valuing these shares. A term called “see-through value” is often used. With Kerry Co-op owning 13.7% of the shares in Kerry Group and based on today’s plc share price (€65) this values Kerry co-op at €1.6bn today.
With 3.9m shares in issue in Kerry Co-op, this means that each share effectively has a €400 see-through value today. Kerry Co-op shares have traded at prices as high as €200 each in recent times.
As far as valuing these shares, the fact that they’re not publicly traded and so few change hands each year makes it almost impossible to fairly value them.
This raises the question if they are really worth the see-through value today. It may also question the historical market values that the Revenue Commissioners have referred to in their letter to some co-op shareholders of €65 in 2011, €75 in 2012 and €90 in 2013.
In reality it is highly unlikely that the share “see-through” value would ever be realised. If all the Kerry Co-op shares in the plc were placed on the market on a given day that would mean 13.7% of the plc was up for sale. This would have the effect of depressing the plc share price immediately in the search for buyers for such a large quantity of shares. The pool of buyers is also limited as it can only be to another Kerry shareholder. This would therefore reduce the “see through” value of each co-op share.
And even if the co-op wanted to sell all its shareholding in one day, it would be almost impossible to do so.
Academic
Therefore, despite the relatively low values of the co-op shares on the grey market, it offers the best method of creating a market that allows a small level of trading. The fact that it values these shares at a relatively low price compared to the “see through” value is academic. Less than 1% of Co-op shares are traded in any given year. The grey market allows people who have no tie to the co-op any more to exit and tidy up their affairs.
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