Thousands of Kerry Co-op shareholders are descending on the INEC event centre in Killarney on Monday for a crunch vote on the future of the co-op.
Just under half of the almost 12,000 shareholders are eligible to vote on the deal and with fine weather forecast for the day, turnout is expected to be high among the 5,577 A and B shareholders.
The deal has been subject to intense debate since it was announced in early November as it has substantial implications for all shareholders and milk suppliers.
Monday’s vote is an all-or-nothing vote, the deal will either be approved or rejected in its entirety and in order to pass, must receive the approval of 66% of those present.
There are a number of elements to the deal. Firstly, Kerry Group plc, of which the Co-op holds 11% of the shares, is going to sell 70% of the Kerry Dairy Ireland business to Kerry Co-op with a view to selling the remaining 30% at a time in the future for an agreed price.
The entire business has been valued at €500m, which has proved to be a point of conflict, with some vocal shareholders holding the view that is over-priced by up to €250m.
The valuation of €500m has been defended by the board of Kerry Co-op, their financial advisers EY and special adviser Jim Woulfe, former CEO of Dairygold Co-op.
The second part of the deal is for all shares in Kerry Co-op to be converted to Kerry Group plc shares. As things stand, Kerry Co-op shares can only be traded on the grey market or through the redemption scheme.
The Co-op says that this creates more liquidity for shareholders and reduces their tax burden on disposal of shares, as they will be taxed at Capital Gains Tax rate of 33% as opposed to the higher rate of income tax of over 50%.
The twist in this is that 15% of each share is being withheld by the Co-op in order to part-finance the purchase of the Kerry Dairy Ireland.
This 15% retention applies to all shares, not just those of active dairy farmers. It is expected that the value of the 15% retention will purchase approximately 74% of the 70% share in the dairy business, depending on share price at the time of the transaction. The remainder will be borrowed by the Co-op.
To finance the remaining 30% of the business, the Co-op intends to borrow more, use cash reserves and use a fund built up from withholding 1c/l from milk price for up to five years starting in 2026.
Another contentious part of the deal is the resolution to the leading milk price debacle. Kerry Group plc have offered to pay 5.4c/l on 120% of contracted milk supplied between 2015 and 2020 to settle the long running dispute over milk price.
According to Kerry Co-op, this payment and previous payments amounts to an “80% win” in terms of the total claim and is a much better outcome than what can be expected from a return to arbitration.
According to Co-op chair James Tangney, this payment will be made to farmers in January or February if the deal is voted through.
Comment
For a milk supplier, a no vote in the Kerry deal is a vote for uncertainty.
The plc say they intend to exit the dairy business so when the current contract expires in 2026 the dairy business could potentially be sold to a third party if this deal isn’t agreed on Monday.
It is unlikely that any third-party purchaser will be a co-operative or have a co-operative ethos when it comes to milk price or investment in the business.
At the end of the day, it comes down to trust - something that has been in short supply in Kerry in recent decades.
Will milk supplying shareholders trust the Co-op board when they say they can run the dairy company and pay a strong milk price?
Will milk supplying shareholders trust the board’s advisers that there is a sound business case to buy the dairy business, and in doing so invest shareholder funds, borrow money and take on all the associated risks?
Or, will milk supplying shareholders ‘vote no for another go’ – a strategy endorsed by some, but one which brings more uncertainty.
These questions will be answered after Monday's vote.
Read more
Opinion: Kerry may be a once-in-a-lifetime opportunity
‘I can’t understand why anybody would vote against this deal’ – Brosnan
Listen: understanding the Kerry deal
Thousands of Kerry Co-op shareholders are descending on the INEC event centre in Killarney on Monday for a crunch vote on the future of the co-op.
Just under half of the almost 12,000 shareholders are eligible to vote on the deal and with fine weather forecast for the day, turnout is expected to be high among the 5,577 A and B shareholders.
The deal has been subject to intense debate since it was announced in early November as it has substantial implications for all shareholders and milk suppliers.
Monday’s vote is an all-or-nothing vote, the deal will either be approved or rejected in its entirety and in order to pass, must receive the approval of 66% of those present.
There are a number of elements to the deal. Firstly, Kerry Group plc, of which the Co-op holds 11% of the shares, is going to sell 70% of the Kerry Dairy Ireland business to Kerry Co-op with a view to selling the remaining 30% at a time in the future for an agreed price.
The entire business has been valued at €500m, which has proved to be a point of conflict, with some vocal shareholders holding the view that is over-priced by up to €250m.
The valuation of €500m has been defended by the board of Kerry Co-op, their financial advisers EY and special adviser Jim Woulfe, former CEO of Dairygold Co-op.
The second part of the deal is for all shares in Kerry Co-op to be converted to Kerry Group plc shares. As things stand, Kerry Co-op shares can only be traded on the grey market or through the redemption scheme.
The Co-op says that this creates more liquidity for shareholders and reduces their tax burden on disposal of shares, as they will be taxed at Capital Gains Tax rate of 33% as opposed to the higher rate of income tax of over 50%.
The twist in this is that 15% of each share is being withheld by the Co-op in order to part-finance the purchase of the Kerry Dairy Ireland.
This 15% retention applies to all shares, not just those of active dairy farmers. It is expected that the value of the 15% retention will purchase approximately 74% of the 70% share in the dairy business, depending on share price at the time of the transaction. The remainder will be borrowed by the Co-op.
To finance the remaining 30% of the business, the Co-op intends to borrow more, use cash reserves and use a fund built up from withholding 1c/l from milk price for up to five years starting in 2026.
Another contentious part of the deal is the resolution to the leading milk price debacle. Kerry Group plc have offered to pay 5.4c/l on 120% of contracted milk supplied between 2015 and 2020 to settle the long running dispute over milk price.
According to Kerry Co-op, this payment and previous payments amounts to an “80% win” in terms of the total claim and is a much better outcome than what can be expected from a return to arbitration.
According to Co-op chair James Tangney, this payment will be made to farmers in January or February if the deal is voted through.
Comment
For a milk supplier, a no vote in the Kerry deal is a vote for uncertainty.
The plc say they intend to exit the dairy business so when the current contract expires in 2026 the dairy business could potentially be sold to a third party if this deal isn’t agreed on Monday.
It is unlikely that any third-party purchaser will be a co-operative or have a co-operative ethos when it comes to milk price or investment in the business.
At the end of the day, it comes down to trust - something that has been in short supply in Kerry in recent decades.
Will milk supplying shareholders trust the Co-op board when they say they can run the dairy company and pay a strong milk price?
Will milk supplying shareholders trust the board’s advisers that there is a sound business case to buy the dairy business, and in doing so invest shareholder funds, borrow money and take on all the associated risks?
Or, will milk supplying shareholders ‘vote no for another go’ – a strategy endorsed by some, but one which brings more uncertainty.
These questions will be answered after Monday's vote.
Read more
Opinion: Kerry may be a once-in-a-lifetime opportunity
‘I can’t understand why anybody would vote against this deal’ – Brosnan
Listen: understanding the Kerry deal
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