On Friday, October 4, members of Tirlán will vote on a single proposal which would, if passed, allow the co-op to both spinout 15m shares in Glanbia plc to members and potentially entirely liquidate its available outstanding holding in Glanbia.

Tirlán held a series of information meetings with members throughout September to explain what the measures would mean and what is motivating the co-op to undertake the changes now.

Fundamentally, it breaks down to two things. Firstly, members would get Glanbia shares – and a commensurate reduction in their number of Tirlán shares – which they could choose to sell or hold. When this was announced, the average value to Tirlán members was just over €24,000 with Glanbia shares trading at €15.90 each. At time of going to press, they had fallen to €15.10.

The second part of the vote is more controversial. Tirlán, under its own rules, is required to hold a minimum of a 17% share of Glanbia plc.

Minimum shareholding rule

The co-op says that as so many shares are already allocated, spinning out the shares would necessitate reducing the shareholding below that level.

Instead of reducing the cap by just the 15m shares being returned to members, the co-op is proposing that the minimum shareholding rule be removed entirely.

Crucially, the board of Tirlán has decided that both proposals are covered by a single vote. The decision breaks down to if members want to get approximately €7,000 of Glanbia shares for every 1,000 Tirlán shares they hold then they will have to allow the removal of the minimum holding of Glanbia shares.

This removal would give the board of Tirlán an investment pot of just over 44m Glanbia shares, worth approximately €625m at the current market price.

Tirlán has said the rule change is necessary to allow the spinout to take place as there are insufficient unencumbered shares to allow the return of 15m to members. While this is true, other rule changes could be made which would allow a spinout without dropping the minimum shareholding.

Security for €250m bond

Looking at Tirlán’s current 75.5m Glanbia shares, there are 15.1m shares set aside as security for the €250m bond raised to fund the buyout of Glanbia Ireland.

At the Special General Meeting to approve that transformative transaction, members also voted to put 12m shares into an investment fund which was set up to “acquire new businesses and technologies with the aim of driving higher returns for Tirlán Co-op members.”

At that SGM members further voted to reduce the minimum holding of Glanbia shares from 28% to the current 17%. Allowing for the investment fund and the bond security, there is a balance of 4m shares which are unassigned (see Figure 1).

The board of Tirlán could, as an alternative to the all-or-nothing proposal facing members this week, make the proposal to members to change the rules around the investment fund. It has been in existence for almost two years now and has purchased nothing.

A vote could be taken to release those 12m shares back to members. Coupled with the 4m unassigned shares, this would allow the spinout of 15m shares with some room to spare, and also allow the maintenance of the 17% shareholding cap.

If the board has a strong argument for reducing this cap in future, then that could be put to members at another vote. At the December 2021 SGM there was a vote for reducing the minimum cap from 28% and a separate vote for introducing a new 17% cap.

At this late stage, however, there is very little chance of a change for the SGM, so it is worth looking at what may happen should the proposal be passed.

If the vote is passed, then some time early next year members of Tirlán will receive 441 Glanbia shares for every 1,000 Tirlán shares they hold.

Their number of Tirlán shares will be reduced by the value of the Glanbia shares they receive. This currently amounts to 138 co-op shares, but that number might vary depending on the market value of Glanbia shares at the time.

Decision on 41.4m Glanbia shares

The second, and more important thing that will happen is that the board of Tirlán will have the power to decide what to do with 41.4m Glanbia shares, currently valued at approximately €625m. (It is worth noting that those shares would have been worth €760m less than two months ago when Glanbia was trading at €18.50 per share.)

The board of Tirlán has been vague about why it requires this level of financial firepower. They have sought to reassure members that there are controls in place over any investments which would be made, but have also been clear that they would not be going back to members for approval of any significant acquisition or spending.

According to Tirlán’s most recent annual report the co-op has a four-stage process for approval of investments – the investment team, the executive leadership team, the strategy sub-committee of the board, and then full board approval.

The extra funding available, should the vote at the SGM pass, will be added to the already available firepower in the investment fund.

According to a presentation on the proposed changes, the extra shares will “target higher long-term returns and payouts to our members” while “reducing the risk over time of a single shareholding”. Should the decision be made to diversify the holding to other financial assets such as shares in other companies, or Government or corporate bonds, then the board will engage “best-in-class advisers to manage our investments”.

While it should come as some relief to members that the investment team in Tirlán do not intend on managing a €625m investment portfolio, as even the task of picking an investment manager, and giving them clear instructions on what to do can be risky.

There is a clear recent example of how difficult this can be in the Apple tax money.

In 2018 Apple put the €14.3bn into an escrow account to be jointly managed by it and the Irish Minister for Finance.

As neither the world’s most valuable company or our Government felt they had the experience required to manage the money, the National Treasury Management Agency (NTMA) was appointed to do it.

The fund lost money on its investments in 2018, 2019, 2020, 2021, and 2022. According to a report this week from the Comptroller and Auditor General, the fund made its first annual gain – of €400m – in 2023. This is not necessarily the fault of the NTMA who were appointed to managed the cash.

When they were given the mandate to manage the cash, they were also given an investment policy where the risk profile was set to “low” with investments only permitted in securities which have little inherent risk such as short-dated sovereign bonds. This investment mandate effectively curtailed the NTMA’s chances of making much of a return at all.

Effective investment mandate

In investment circles the need to set an effective investment mandate is well known.

When the Irish Farmers Journal asked Toby Nangle, formerly Head of Multi Asset and Head of Global Asset Allocation, EMEA at Columbia Threadneedle Investments, which manages more than €550bn, he said that “assigning €625m to a portfolio of financial assets – that will be managed externally – will require specialist skills, and a well-considered governance framework.”

He added that specialists would have to be hired to draft an investment management agreement, design a mandate, set performance benchmarks, risk parameters and reporting expectations.

The obvious point is that deciding to do anything with the money will require a deep understanding from the board of Tirlán on how they want the money spent, and how much risk they are comfortable taking, before they spend any of it on financial assets.

We at the Irish Farmers Journal have had feedback from members of Tirlán Co-op questioning the timing of this, and raising conerns about losing control of Glanbia shares.

The concerns, which are certainly valid, can be broken down into two main camps.

First, there seems to be some resistance from members to giving up control of the €625m of Glanbia shares to the board.

While the board says they have controls in place on how the money will be spent there is disquiet among some members on whether the board has the skillset to make these decisions.

Secondly, there is the matter of who actually owns the shares. Some members have suggested that the shares belong to the members rather than the co-op, whereas the co-op contends that they are like the stainless steel in Ballyragget and belong to it.

€250m bond

Either way, there is nothing stopping the co-op spinning out all of the Glanbia shares – besides those backing the €250m bond – to members.

The proposed spinout would be worth around €23,300 on average to members at the current market price. If all the available shares were spun out, that value would be over €92,000 on average.

This means the value, on average, of shares per member which the board is being entrusted with is €70,700.

One of the challenges the board will face in the coming years is that those members will always be able to clearly see what Glanbia shares are worth, and be able to tell very easily how they are performing against the options of either changing nothing, or of giving them back the shares now.