If the proposal for the takeover of Kerry Dairy Ireland by Kerry Co-op is approved by shareholders in December it will see the end of the Kerry name in Irish dairy processing.
The terms of the deal which were published on Kerry Group’s website this week state that within three years of completion of the first phase of the deal the corporate name of Kerry Dairy Ireland and its subsidiaries will not contain the word “Kerry”.
There are perpetual licence agreements in place which will allow Kerry Dairy Ireland use other intellectual property, including trademarks and those relating to manufacturing processes.
The document also contains details of other payments that need to be made to Kerry Group, as well as adjustments which could be made to the overall agreed price of the deal.
The €7.5m annual dividend payable to Kerry Group by Kerry Dairy Ireland can be skipped if needed by of the processor, but any skipped payments will be added on to the bill for the final buyout either in 2030 or by 2035.
Kerry Group and Kerry Co-op will have to agree in writing before the processor is authorised to carry out what are referred to as “reserved matters”. These include carrying out any material business other than the existing activities of Kerry Dairy Ireland, disposing of any assets of the Kerry Dairy Ireland above an agreed threshold and incurring indebtedness which would result in a net debt to EBITDA (earning before interest, taxation, depreciation and amortisation) of greater than 2 to 1, with allowances made for working capital facilities.
Kerry Group will be subject to a non-compete clause for as long as it is a shareholder of Kerry Dairy Ireland, and for two years after.
One of the big factors for the deal, and the future of the Kerry Dairy Ireland business, will be the unwinding of support services provided to the processor by Kerry Group.
This is covered by a transitional services agreement in which Kerry Group will continue to provide IT, marketing, research and development, regulatory, food safety and quality, procurement, finance, HR and benefits, treasury, legal, corporate affairs and tax services to Kerry Dairy Ireland for a period of up to five years.
As part of the agreement, Kerry Group will assist Kerry Dairy Ireland in developing these services to allow for a full separation.
Until that is complete Kerry Group will charge the processor an agreed, index linked, cost for the provision of the services with a discounted rate for the first three years to help fund the IT transition.
Kerry Group has undertaken to indemnify Kerry Dairy Ireland against loss or liability from certain matters including, interestingly, the replacement of a spray-dryer at the Listowel site, in the event that such a replacement is required within an (unspecified) defined period following the completion of the phase 1 deal in January 2025.
There are potential adjustments to the overall purchase price which will come into play should Kerry Dairy Ireland not reach agreed adjusted EBIDTA targets through the end of 2025. The document published by Kerry Group does not state what those agreed levels are.
There is also an adjustment which can be made, depending on where Kerry Group shares are trading in the 10 days before the end-January completion of the deal.
The deal as first announced was based on a Kerry share price of €87.90, a level more or less in line with where the plc is trading this week. This means that the share transfer would be worth €250m, with Kerry Co-op borrowing €56m from a consortium of banks, and Kerry Group providing the balance of the €350m phase 1 payment as a loan at commercial rates – which the Irish Farmers Journal understands to be in the region of 4.2%.
Every €1 move in the value of Kerry Group shares changes the amount of borrowing required by €2.9m. In the unlikely event that those shares rose to €120 each at the end of January, then the first phase of the deal could be completed without any debt.
The agreement does cover what would happen if there was a significant drop in the value of Kerry shares. If they drop to below €69, but remain above €60, then to share of Kerry Dairy Ireland the co-op would acquire in phase 1 would also drop from 70% to as low as 64% – with the purchase of the balance still to be undertaken in future.
In the unlikely event that Kerry Group shares trade below €60 at the end of January, then the purchase price will drop on a euro-for-euro basis below that level – that is, every further €1 drop in the value of Kerry shares would lead to a €2.9m reduction in the purchase price.
The need to rebrand Kerry Dairy Ireland may come as a disappointment to some members who will no longer see a Kerry lorry coming to pick up their milk, but it does make sense from a business separation point of view. It is very similar to what happened when Glanbia Ireland rebranded as Tirlán following the separation there.
It does however, add another cost to the business as any such rebranding would be a multi-million-euro expense for the processor at the same time as when it is trying to build a new IT system and get all the usual management functions in-house.
It is again clear, however, that the single most important factor for Kerry Co-op at the moment – presuming the deal is passed in the 16 December vote – is the price of Kerry plc shares. While there is both potential upside or downside for the co-op from the agreed structure, it may have been easier from a planning perspective to agree that the deal would be funded by €250m worth of shares, rather than be funded by 15% of its shareholding. This would take a considerable amount of risk away from the deal for the processor as shareholders of the co-op would have a much better idea of what the debt levels would be involved in the transaction they are being asked to vote in favour of.
In short
Kerry Dairy Ireland to be rebranded.€7.5m dividend either paid, or owed to Kerry Group.Kerry Dairy Ireland will need to build its own IT and back-office function.Potential earnings adjustment to purchase price.Value of Kerry Group shares is a critical variable.
If the proposal for the takeover of Kerry Dairy Ireland by Kerry Co-op is approved by shareholders in December it will see the end of the Kerry name in Irish dairy processing.
The terms of the deal which were published on Kerry Group’s website this week state that within three years of completion of the first phase of the deal the corporate name of Kerry Dairy Ireland and its subsidiaries will not contain the word “Kerry”.
There are perpetual licence agreements in place which will allow Kerry Dairy Ireland use other intellectual property, including trademarks and those relating to manufacturing processes.
The document also contains details of other payments that need to be made to Kerry Group, as well as adjustments which could be made to the overall agreed price of the deal.
The €7.5m annual dividend payable to Kerry Group by Kerry Dairy Ireland can be skipped if needed by of the processor, but any skipped payments will be added on to the bill for the final buyout either in 2030 or by 2035.
Kerry Group and Kerry Co-op will have to agree in writing before the processor is authorised to carry out what are referred to as “reserved matters”. These include carrying out any material business other than the existing activities of Kerry Dairy Ireland, disposing of any assets of the Kerry Dairy Ireland above an agreed threshold and incurring indebtedness which would result in a net debt to EBITDA (earning before interest, taxation, depreciation and amortisation) of greater than 2 to 1, with allowances made for working capital facilities.
Kerry Group will be subject to a non-compete clause for as long as it is a shareholder of Kerry Dairy Ireland, and for two years after.
One of the big factors for the deal, and the future of the Kerry Dairy Ireland business, will be the unwinding of support services provided to the processor by Kerry Group.
This is covered by a transitional services agreement in which Kerry Group will continue to provide IT, marketing, research and development, regulatory, food safety and quality, procurement, finance, HR and benefits, treasury, legal, corporate affairs and tax services to Kerry Dairy Ireland for a period of up to five years.
As part of the agreement, Kerry Group will assist Kerry Dairy Ireland in developing these services to allow for a full separation.
Until that is complete Kerry Group will charge the processor an agreed, index linked, cost for the provision of the services with a discounted rate for the first three years to help fund the IT transition.
Kerry Group has undertaken to indemnify Kerry Dairy Ireland against loss or liability from certain matters including, interestingly, the replacement of a spray-dryer at the Listowel site, in the event that such a replacement is required within an (unspecified) defined period following the completion of the phase 1 deal in January 2025.
There are potential adjustments to the overall purchase price which will come into play should Kerry Dairy Ireland not reach agreed adjusted EBIDTA targets through the end of 2025. The document published by Kerry Group does not state what those agreed levels are.
There is also an adjustment which can be made, depending on where Kerry Group shares are trading in the 10 days before the end-January completion of the deal.
The deal as first announced was based on a Kerry share price of €87.90, a level more or less in line with where the plc is trading this week. This means that the share transfer would be worth €250m, with Kerry Co-op borrowing €56m from a consortium of banks, and Kerry Group providing the balance of the €350m phase 1 payment as a loan at commercial rates – which the Irish Farmers Journal understands to be in the region of 4.2%.
Every €1 move in the value of Kerry Group shares changes the amount of borrowing required by €2.9m. In the unlikely event that those shares rose to €120 each at the end of January, then the first phase of the deal could be completed without any debt.
The agreement does cover what would happen if there was a significant drop in the value of Kerry shares. If they drop to below €69, but remain above €60, then to share of Kerry Dairy Ireland the co-op would acquire in phase 1 would also drop from 70% to as low as 64% – with the purchase of the balance still to be undertaken in future.
In the unlikely event that Kerry Group shares trade below €60 at the end of January, then the purchase price will drop on a euro-for-euro basis below that level – that is, every further €1 drop in the value of Kerry shares would lead to a €2.9m reduction in the purchase price.
The need to rebrand Kerry Dairy Ireland may come as a disappointment to some members who will no longer see a Kerry lorry coming to pick up their milk, but it does make sense from a business separation point of view. It is very similar to what happened when Glanbia Ireland rebranded as Tirlán following the separation there.
It does however, add another cost to the business as any such rebranding would be a multi-million-euro expense for the processor at the same time as when it is trying to build a new IT system and get all the usual management functions in-house.
It is again clear, however, that the single most important factor for Kerry Co-op at the moment – presuming the deal is passed in the 16 December vote – is the price of Kerry plc shares. While there is both potential upside or downside for the co-op from the agreed structure, it may have been easier from a planning perspective to agree that the deal would be funded by €250m worth of shares, rather than be funded by 15% of its shareholding. This would take a considerable amount of risk away from the deal for the processor as shareholders of the co-op would have a much better idea of what the debt levels would be involved in the transaction they are being asked to vote in favour of.
In short
Kerry Dairy Ireland to be rebranded.€7.5m dividend either paid, or owed to Kerry Group.Kerry Dairy Ireland will need to build its own IT and back-office function.Potential earnings adjustment to purchase price.Value of Kerry Group shares is a critical variable. 
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