Kerry Co-op board weighs up historic €480m joint venture bid

The board of Kerry Co-op will hold a crucial meeting on Wednesday 20 January to decide whether or not it will submit a €480m offer to Kerry Group plc for a 60% majority stake in its primary dairy business.

Speculation is rife in Kerry farming circles that the co-op will formally submit a €480m offer to buy 60% of Kerry Group’s dairy business this week, which would value the entire business outright at €800m.

Kerry Group’s primary dairy business is understood to have annual sales of €1.2bn and makes profits of €80m to €100m per year.

After more than a year of talks between both sides that looked to be making little progress, events over the last week have injected some major urgency into negotiations.

Outside buyer

Sources close to the talks have told the Irish Farmers Journal that Kerry Group informed Kerry Co-op last week that a third party has now submitted an offer to buy its primary dairy business in its entire. It’s believed this offer is close to €800m.

The news that a third party had made an offer for the business prompted a flurry of activity at board level of Kerry Co-op in the days that followed. Thomas Hunter McGowan called an emergency meeting of all board directors the following day to bring them up to speed with developments.

Board directors were given the weekend to digest the news and a further board meeting took place on Monday (18 January). At Monday’s meeting, directors of Kerry Co-op heard from their financial advisors at PWC, who again reiterated their view that the primary dairy business should be valued at around €640m.

This figure is significantly less than the €800m price tag that Kerry Group is understood to be insisting on.

Time frame

Directors of Kerry Co-op were also told at Monday’s board meeting by PWC that time is now very limited for getting a deal across the line. Even if Kerry Co-op makes a formal offer this week, the required due diligence process will take an estimated six weeks. The co-op’s advisors said this would leave the co-op with a very narrow window in which to raise the €480m in capital needed to buy the 60% stake in Kerry Group’s dairy business.

The Monday board meeting of Kerry Co-op concluded without any definitive decision on whether to submit an offer for the business. Instead, the board said it would delay its decision on the joint venture deal until Wednesday this week.

The reason for this delay was to allow the co-op board meet again with Scanlon and Pat Murphy, head of Kerry Agribusiness, on Tuesday (19 January) to discuss the contentious ‘leading milk price’ issue.

The Irish Farmers Journal understands that a cohort of board directors at Kerry Co-op wish to settle the ‘leading milk price’ issue once and for all before any serious negotiations on Kerry Co-op investing in a joint venture dairy processing business can take place.

As revealed last year by the Irish Farmers Journal, Kerry Group’s primary dairy business includes Kerry’s three Irish milk processing facilities in Charleville, Newmarket and Listowel, and also includes its dairy spreads manufacturing site in Ossett in the UK.

This business includes Kerry Group’s infant formula manufacturing business in Charleville as well as its range of well-established dairy brands such as Cheesestrings, Dairygold, Low Low, Charleville Cheese and Golden Cow.

In total, Kerry Group processes about 1.2bn litres of milk every year making it one of the ‘big four’ milk processors in the country.

Dairy products

The main dairy products produced by the three sites in Ireland are casein and cheddar. Indeed, about one-third of all the milk collected by Kerry Group is processed into rennet casein, making it one of the largest casein producers in the world. Another third of Kerry’s milk supply is used to produce up to 40,000t of cheddar every year.

The whey left over from making cheese and casein is then further processed into demineralised whey, which Kerry Group uses in its own infant formula plant in Charleville but also sells to infant formula companies in Europe and Asia.

The final third of Kerry’s milk pool is used for skimmed milk powder (SMP) and a range of high-value specialised protein ingredients. The joint venture deal would also include Kerry Group’s agri trading business, which comprises its animal feed mill in Farranfore and network of agri stores.