The first of a series of information meetings about the proposed purchase of Kerry Dairy Ireland was held for members of Kerry Co-op in Dingle on Monday 25 November.

The meeting was shown a breakdown of how many shares are owned by each class of shareholder.

We’ll take a look at what the potential ramifications of the deal are for each of them.

Firstly, taking each group of shareholders as a whole, we can see that the C shareholders are not getting a vote on the deal but are contributing an average of over €14,600 each towards the purchase of Kerry Dairy Ireland.

If they choose to hold on to the €83,000 balance as a shareholding in Kerry Group, then they should not have any tax liability for that (depending on personal circumstances). They will receive future dividends directly from Kerry Group.

The C shareholders received, on average, €888 in dividends from Kerry Co-op in 2023. The 85% holding they will be left with in the wake of the deal would have earned them €1,122 in dividends directly from Kerry plc for 2023, so by that measure alone, they will be better off.

It is a similar story for the uplift in dividend payments for A and B shareholders, but as they are the ones who will be voting, it is worth taking a closer look at what the deal means for them.

The B shareholders will, on average, receive €147,500 worth of Kerry shares (at current market prices) and contribute just over €26,000 to the purchase. The A shareholders, on average, will get the biggest payout at €176,000 worth of shares and contribute over €31,000 to the purchase (Tables 1 and 2).

Overall, non-milk supplying shareholders will provide approximately €170m towards the purchase.

The board of the co-op said that under the arrangement, shareholders will be subject to capital gains tax if they sell their Kerry plc shares, rather than income tax.

This point is key for a number of shareholders – and is something that was both asked about in Dingle and which the Irish Farmers Journal has received considerable feedback on.

The assumption that shareholders are better off paying capital gains tax rather than income tax is based on shareholders paying tax at the higher rate.

For a significant number of them, this is not the case.

Particularly so for post-retirement age shareholders who have been using the share redemption scheme to top up their income.

Someone on a pension of €20,000 per annum can cash in another €24,000 of shares under the existing Kerry Co-op redemption scheme, which is treated as income for tax purposes, leaving them with potentially a lower overall tax liability than if they had to pay capital gains tax of 33%.

Further, the loss of 15% of their holding to the co-op for the purchase of Dairy Ireland will effectively reduce their potential future assets, as the share of the co-op could be very difficult to liquidate.

In Kerry Co-op’s own FAQ on the share redemption scheme on its website, it says “in many cases, this scheme will be favourable towards those on lower incomes”.

Since the launch of the scheme in 2019, it has paid out well in excess of €550m to shareholders of Kerry Co-op.

Portion of holding

Looking at Figure 1, which shows the annual number of redemptions broken down by whether they were partial or full redemptions of a shareholding, it is clear that shareholders were selling down a portion of their holding each year rather than selling all their shares.

It is notable that the number of shares in Kerry Co-op has dropped from 3,931,211 in 2019 to 3,044,986 in 2024, again pointing to the popularity of this scheme.

The loss of this scheme and opportunity for a steady annual income from a life-long investment has been met with considerable anger from those shareholders affected.

Some A shareholders and new entrant suppliers who often hold very few or no shares in the co-op and those who have expanded their milk output in recent years are also unhappy with the proposal.

Farmers the Irish Farmers Journal have spoken to are concerned that the co-op will be paying dividends to B and C shareholders. These – often young, and always ambitious – farmers want no “dry” shareholders in the business.

One said that he would be happy to considerably increase his contribution towards the purchase of the Kerry Dairy Ireland operation to keep the dry shareholders out as this would give them a chance of a payday much further down the line when the processor might be more valuable.

Farmers who expanded in recent years after also caught with a lower arbitration payment. Their expansion means that they will have been supplying considerably more than that milk they are contracted for.

The payout is capped at €50m and 120% of contracted milk. The payout at 5.4c/l means that it will be paid on 926m litres of milk, almost 200m litres less than was supplied to Kerry Dairy Ireland last year.

This means there is the risk of a battle between the B and A shareholders over the control of the co-op. B shareholders will want to make sure there is some emphasis on paying a dividend while the As will want competitive milk price and money to be reinvested in the business.

There’s an old saying in business that a good compromise is one in which nobody gets everything they want, and it seems that every class of shareholder in the co-op has something to be unhappy about.

The C shareholders will have to take whatever is agreed as, despite being the majority of shareholders, have no say in the running of the business.

There are some very unhappy shareholders in the A and B camps, where some don’t want any changes to the current arrangements and others think the changes don’t go nearly far enough.

As usual in these circumstances, the people who are generally in favour of the deal are the ones who have less to say, so there could well be a very strong majority who will vote yes on 16 December.

The mood in Dingle on Monday certainly suggested that to be the case, with some comments from the floor urging a yes vote, and fears suggested that they would find nobody else to collect their milk if Kerry wouldn’t do it.

It will be interesting to see if the same level of support for the deal will be on display at the information meetings in Limerick and Clare where farmers would have fewer concerns about milk collection.