Tirlán members made a huge show of support for the board, when voting in favour of the share spinout and the changes in the rules governing the co-op’s holding of Glanbia shares.

Under the new rule passed at the SGM, Tilán will no longer have to maintain a minimum 17% shareholding for Glanbia. At the moment Tirlán is not close to that, as it holds an approximately 29% stake in the listed company.

However, due to almost 30m of Tirlán’s 75.5m shares in Glanbia already accounted for between security for its 2027 bond – more on that below – and already earmarked for Tirlán’s investment fund established in 2023, the spinout of 15m shares would have breached the 17% limit.

In last week’s paper, we examined the difficulty the board might have in making the investments in financial instruments such as stocks and bonds with its new €600m+ fund which could provide the returns the board seem to require.

The other option open to the board, should it decide to cash in its Glanbia shares, would be to buy a company, which could provide the required returns.

This, again, would not be as easy as it might seem. There is a lot of investor money in the world at the moment chasing assets, which either provide a strong return or have high growth potential. Even in Ireland we have recently seen a rise in private equity funding for companies – the sale of Galway-based Chanelle Pharma to a European private equity fund is one such example.

The problem for Tirlán’s board is more likely to be one of availability of companies to buy, rather than availability of money with which to buy them.

It may be in Tirlán’s interest to stick to its knitting if it is looking to make what chair John Murphy described as a “transformational” change for the co-op. This would mean making an acquisition in the dairying space, or something closely adjacent to it.

An acquisition in an area where the co-op has a long history of expertise would put Tirlán in a strong position to add value itself to any purchase. Tirlán’s own market knowledge would also help the board when it comes to accurately pricing any deal.

On the dairy side, there are a few opportunities globally which are worth looking at. Tirlán may be interested in purchasing Glanbia’s US cheese business. While such a deal has long been speculated about, it could make sense from an expansion perspective for Tirlán.

Glanbia’s US cheese business consists of a wholly-owned facility in Idaho, as well as the joint-venture Mid-West Cheese/Southwest Holdings facilities in Michigan and New Mexico. In 2023 that cheese business had revenue of $2.6bn (€2.37bn), but a razor-thin margin of only 1.6%, meaning earnings before interest, tax and amortisation were only $42.4m (€38.6m). While that level of earnings would probably put a purchase within the scope of Tirlán’s approximately €600m budget, a lot of work would have to be done to meaningfully improve returns.

The are also developments in the US cheese market which may prove a headwind to making those returns. Analysis by the International Dairy Association shows that the US has around $4bn (€3.64bn) of new cheese-making capacity due to come into production by 2028.

The co-operative sector in Europe may also throw up some opportunities, with some of the largest operations such as Arla and FrieslandCampina announcing in the last year, respectively, changes in focus and a structural reduction in costs. However, once again in these circumstances, available margins would be very low and much work would need to be done to improve returns on investment.

Opportunities at home

Looking even closer to home, Tirlán recently threw its hat into the ring for talks on the future of Tipperary Co-op, and while that processor has gone a different route with its exclusive talks with Arrabawn, there may be other domestic operators which could be looked at. While we are being purely speculative here, in some ways a Tirlán takeover of Kerry Group’s Irish dairy operations would make sense for both sides.

Firstly, Kerry’s Irish dairy operation is for sale. Group CEO Edmond Scanlon earlier this year said he was open to offers for the business. Tirlán now has the money to do a deal.

A lot more would have to fall into place for anything to get off the table, but in Ireland’s dairy industry right now the most valuable commodity is milk supply, rather than processing capacity. Tirlán already has excess capacity, so could easily increase efficiency from Kerry’s 1bn litre milk pool.

The focus for Kerry suppliers recently has been on a potential buyout of, or joint-venture with, Kerry Dairy Ireland. However, the board of Tirlán could bid for Kerry Dairy Ireland without going back to members, and Kerry Group could sell it without having to to get any feedback from suppliers at all.

Getting the member vote over the line is only the start of the work for the board of Tirlán. It has told members that it would seek to get a better return on investment, as well as “future-proof” the co-op for “this generation and generations to come”. Securing generational wealth is certainly is a very big ask for any board. While it suggested that it could invest in financial markets, the risks there seem high and the experience of financial markets on the board is probably low – no slight intended against the board. The idea of buying a dairy, or dairy-adjacent operation makes a lot more sense, as that is a place where the board has genuine expertise. It would have a good chance of turning around a struggling business and growing Tirlán’s core operations. While buying a dairy operation in Ireland might seem on the face of it like a failure to diversify, it is worth remembering that the vast majority of Tirlán’s sales are to its customers overseas. The long-term value in securing milk supply may well end up being a much better investment than taking a bet on the movement of financial markets, or the changing tastes of American cheese eaters.

In short