Around 120 members of the Kerry Co-op gathered in the Dingle Skellig Hotel to hear details of the proposed transaction which would see the co-op buy the Kerry Dairy Ireland business from Kerry Group plc for €500m.

Adviser to the board of Kerry Co-op Jim Woulfe opened the discussion with a presentation which outlined how the proposed transaction would proceed and gave an overview of what would be included in the purchase.

On shares, he outlined that the three classes of shareholders in Kerry Co-op would get a total of €1.422bn in Kerry plc shares (at a valuation of €87.90 per Kerry share).

The balance of Kerry Co-op’s shares in the plc (€251m) would be put towards the purchase of the dairy business.

Simon McAllister from EY explained to those gathered how the purchase would be completed with the €251m of shares and a €56m loan from four banks (two Irish and two international), with the balance funded by a loan from Kerry plc.

He said that the deal would, presuming average earnings, leave the processor with a debt to earnings before interest, taxation and depreciation (EBITDA) ratio of less than 1.3. He further projected how the balance of the €150m purchase price would be paid by 2030.

McAllister outlined that the plan would be to pay it with retained earnings, third-party debt and with the proceeds from a 1c/l contribution from milk suppliers.

That contribution, which is expected to amount to €50m by 2030, would take the form of a convertible loan note from suppliers. This means that suppliers would be entitled to that money back should they stop supplying milk or they could convert the loan into shares in the co-op.

Contribute

He said that B and C shareholders could contribute if they wished, but only milk suppliers would be obliged to make the payment.

Jamie Olden from RDJ spoke on the arbitration resolution which is included in the takeover proposal.

He said that the proposed payment of €50m is “an excellent offer”. He acknowledged that there is disappointment among suppliers that the payment only covered 120% of the contracted milk – particularly as Kerry Group had made previous payments on all milk – but the payment was being made strictly according to the written contract and under those conditions it would amount to 5.4c/l.

Fixed milk price contracted milk is also excluded from the 5.4c/l payment.

Tax implications

When the floor was opened, there were questions about the tax implications of the transfer, with some looking for a guarantee from Revenue.

The room was told that Revenue does not issue guarantees, but that the board has a letter from Revenue officials agreeing that it is a share-for-share transfer and that Revenue had no further questions about the transfer.

The issue of Scope 3 emissions was also raised. One member of the audience put it that costs of Kerry Dairy Ireland’s Scope 3 emissions would be in the order of €170m by 2030, suggesting that the processor was hugely overvalued at €500m.

Jim Woulfe explained that Kerry Dairy Ireland would only be liable for its Scope 1 and 2 emissions, with a plan in place to reduce those emissions to 47% of their 2017 level by the end of the decade.

He said that 95% of the emissions were inside the farm gate and would not be an issue for Kerry Diary Ireland’s profit and loss account.

Support

More than one member of the audience voiced support for the deal, with one saying farmers in the Dingle peninsula are “well off the beaten track” and needed to vote yes to ensure their milk would continue to be collected.

Another member said they would be voting no, as their circumstances meant that they would be paying more tax under this proposal than they were paying under the existing share redemption scheme.

In response to a new milk supply contract, members were told that any new contract would be a matter for the processor after the deal completes.

Chair of Kerry Co-op James Tangney said that he expected a new milk contract with be issued in March or April of 2025.

There will be further information meetings held in Kerry, Limerick and Clare between 25 November and 5 December, with a detailed schedule available on the Kerry Co-op website.