‘I can’t understand why anybody would vote against this deal’ – Brosnan

When I started off asking Denis Brosnan about this proposed deal I put it to him that this was the co-op coming full circle, back to the structure it started off as in 1974.

He said yes, but he also said it’s the perfect ending to 50 years of co-op and plc involvement and effectively the start of the new Kerry.

“This is the start of something very new and while the operating structure might be similar, the business is starting from a very different base,” Brosnan said.

“Kerry Dairy Ireland has a hugely successful consumer foods business which ironically was purchased from Dairygold, because I think it’s time a new Kerry Dairy Ireland and Dairygold came together.

“This business has all the research and development (R&D) created down through the decades, so it should have no fear as to where to go next.

“There will have to be rationalisation and some key executives have to sit down with co-op boards and consider better ways to add value to what milk they have.”

While Brosnan might see Kerry and Dairygold do the Tango in future, one important hurdle to be crossed first is the upcoming vote on 16 December in Killarney for all A and B Kerry shareholders.

I asked him what he saw as the advantages of this proposed new deal.

“What’s proposed to happen is really solving lots of problems – A shareholders cannot forever keep B and C shareholders unrepresented, in a Kerry Co-op that doesn’t process anything.

“Everyone must get the same rights. With this deal the B and C shareholders have the opportunity to take plc shares for 85% of co-op shares and that brings significant wealth if they want to cash it in.”

When pushed on the advantages for the milk suppliers, the A shareholders, he said, “they take out €459m – its no small amount – yes they have to pay tax on it – but they can invest it how they like.

“They’ll own the milk processing business again because the milk is such a smaller aspect of the current plc business”.

What does the deal look like in the eyes of Kerry plc? He said it opens up opportunities because this transfer of shareholding means some individuals have a stronger plc holding and they will want to see the plc driving forward.

“If the plc says they have a business giving a 5% or 6% return and a business giving a 20% return then investors will say get rid of that bad business.

“That’s why bulk, large scale milk processing will always be done by a co-op movement.”

What way should shareholders vote on it?

Brosnan was unequivocal in his response: “I cannot understand how anybody would vote against it – I understand from all the meetings that there were some issues raised for the co-op board around maximum milk price, and other different reasons around why some might be voting against it, but the agreement per se is such a winning situation for all.

“The milk suppliers – buy the dairy business, in addition they get €459m which is a huge boost and could allow them buy land or whatever.

“For the B shareholders who have a vote it’s little different. They take out about €440m and for C shareholders €525m.”

If this proposed deal goes through what structure would Brosnan envisage leading the business?

“There should then be a new structure where milk suppliers should have voting rights and let them control the co-op.

“Then other shareholders should be merged together, who have no say in the co-op.

“It’s quite big in the USA where some shareholders all get the same dividend. Going forward it simply should be voting shares and non voting shares.”

Denis Brosnan is the founder, former chief executive and until 2003 was the chair of Kerry plc. Brosnan has many business interests outside of Kerry and lives in Croom, Co Limerick.

In our exclusive interview this week, Denis Brosnan recalls how just as the Kerry milk processing business had completed enough processing capacity for an neverending supply of milk, county Kerry was selected by the Department of Agriculture for brucellosis eradication.

The co-op lost 20% of its milk supply overnight.

Around the same time EU milk quotas were established so, effectively, milk supply to the co-op was capped at 80% of the pre- 1978 milk supply.

“It was affecting our farmers, but more so all our processing activities, and with a lot of thought we just changed the way we were doing things.

“We said let’s just work with the milk we have, and see how we could add huge value to it because we can’t get anymore milk.”

This decision forced Kerry to change its funding structure by converting to a plc in 1986.

“Kerry Co-op would sell all its assets to the plc (£39m pounds at the time) and the co-op became solely an investment institution so all the farmers in Kerry, over 7,000 farmers, held shares in Kerry Co-op and initially Kerry Co-op held 90% of the shares in the plc, 10% were floated on the stock market.”

In 1986 Kerry gave farmers the opportunity to buy plc shares.

For every co-op share they could buy one plc share for 35p at the time. It meant Kerry had a co-op that started out with £1m raised from farmers in 1974 and then in 1986 Kerry had executives that were confident they could turn a plc share into something very big.

In 1988 Beatrice Food Ingredients in the US was purchased and that changed Kerry forever.

“Suddenly this opened up a world market,” he said.

We know now that the original 35p share is worth about €90 today and the original £1m in 1974 is being cashed out at about €1.4bn.

Should a new co-op trade with Ornua?

“Yes if it makes financial sense. The reason we left or it left us in the 80s – we were in absolutely a different place – the Irish dairy board prided themselves in butter and powder and that just wouldn’t work for us.”

Dairy industry rationalisation

“You will have a Leinster based co-op, that’s Tirlán fundamentally, and Munster based co-op (Kerry and Dairygold) with maybe some small co-ops also.”