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Some tough conversations were had among Arrabawn suppliers, co-op board members and company management on the potential merger with Tipperary Co-op at a meeting in Co Galway.
At the meeting held on Wednesday 23 October in Loughrea, Galway-based Arrabawn suppliers were divided on the potential merger with their Tipperary neighbours.
How the new entity would manage Tipperary Co-op’s debt – over €55m – was a key concern among suppliers, including how this would be paid back if there were to be a smaller milk pool due to further cuts to the derogation.
Presentations by the chair of Arrabawn Co-op and several members of the company’s management highlighted the opportunities in terms of geographical alignment.
Casein
Arrabawn’s reliance on casein was also pointed out. Several senior management members, including CEO Conor Ryan, said Tipperary Co-op’s product line would cushion against market volatility in the future.
The deal would see the current Arrabawn Co-op account for 75.5% of the new entity, with Tipperary Co-op making up 24.5%.
The figures are based on valuations of €161m for Arrabawn and €50m for Tipperary Co-op, factoring in its current level of debt.
The new entity would be called Arrabawn Tipperary Co-operative Society Limited and have a 15% share in Ornua.
The deal would include Tipperary Co-op’s assets, including its profitable French cheese business.
Arrabawn's Dan O’Connor feed mill would also probably get new sales opportunities with Tipperary suppliers as that co-op does not have its own feed mill.
The meeting heard that the two co-ops would be merged as much as possible from the beginning, including milk being directed to the closest plant and one management team.
The meeting was one of three events held for Arrabawn suppliers to outline the details of the proposed merger. The others took place in Nenagh and Charleville in the days prior.
Three meetings of a similar nature were held for Tipperary Co-op suppliers, with robust conversations at the meeting in Ballykisteen on Monday 21 October.
‘White elephant’
Whether or not Tipperary Co-op’s plant in Tipperary town could be considered a “white elephant” was discussed on a couple of occasions.
Arrabawn’s operations manager Ollie Heffernan outlined a plan on how operations in the main Tipperary Co-op plant could be turned around to be profitable.
“The other thing that is going around over the last couple of weeks is that the plant in Tipperary is a white elephant.
“You may have [heard people say] that the investment has been spent on stainless steel and that it has no milk to fill its capacity. As Trump says, ‘fake news’,” Heffernan added.
War of words
Arrabawn’s chief financial officer (CFO) Micheál O’Kelly presented on both Arrabawn and Tipperary Co-op’s finances.
O’Kelly said that Tipperary Co-op was getting on top of its new fat-filled powder product, which was contributing to its unprofitability issues.
“Going into 2025, they would be able to produce in significant quantities and stem some of these losses,” O’Kelly said.
Suppliers expressed concern over the projections relating to Tipperary’s profitability in the future, with a good second half of 2024 forecast.
“Is that a realistic projection? They’re a basket case; they’ve too many staff, they’ve driers that don’t work, so there’s a massive investment needed as well. They’ve lost money last year, their losing again this year,” a supplier said.
O’Kelly replied that Tipperary is experiencing issues, but going back to 2021 and 2022 the co-op was profitable, with a second drier bought in 2023 causing problems.
Another supplier said: “Those figures wouldn’t inspire you. That’s a pure white elephant.”
Arrabawn chair Edward Carr then called for questions to be held until the end, as a war of words broke out between the floor and the top table.
Derogation
There was also a difference of opinion on how the potential new entity could withstand further cuts to the derogation.
Arrabawn CEO Conor Ryan said a larger co-op could manage changes to the derogation better than a smaller one.
“We would have a larger milk pool going forward. So in case of derogation [cuts] going forward, we would have more options to ensure the efficiency of our plants,” he said.
Ryan added that in the case of extra capacity, the new entity could drop off product lines - which on further questioning from the floor later he named as the Danone concentrate and the cheese plant in Tipperary town - “and keep running our plant very efficiently”.
A supplier from the floor asked if due diligence on the risk involved in the merger was done.
“Say for instance there is a 10% cut [to the derogation], have there been any sums done on what effect that would have on the co-op,” he asked.
Ryan responded that the management put in place a strong business plan over the past six months.
Arrabawn chair Edward Carr said the merger would allow the co-op to continue to pay one of the top milk prices going forward.
“This is not to risk milk price, this is to copper fasten the position we have in paying one of the top milk prices. This is why we’re making this decision,” Carr said.
Simplify and streamline
Ryan outlined that operations at the Tipperary plant would be simplified, with less products and longer production runs of products for efficiency.
The CEO added: “We would significantly reduce the cost base in their organisation and we would also be reducing the cost base in our own organisation.”
Ryan also spoke about Arrabawn needing to diversify its product range.
“If we look at Arrabawn today, we would say we are overdependent on casein. Casein has been the best return product for the last three or four years and it has delivered very well for us.
“We need to develop one or two areas outside of that, that in case the market falls flat, we have something to fall back on,” he added.
‘The bigger lads’
The future of Arrabawn if it did not merge with Tipperary Co-op was questioned by a farmer.
“I’m not an accountant or anything, but I don’t need to look at figures to see what’s going on. I think the room feels an awful lot different to the way the top table does tonight,” he added.
Ryan said staying as is was not a good strategy and warned that if someone else takes on Tipperary Co-op, Arrabawn will be next.
“This is a once-in-a-lifetime opportunity. If it’s snapped up by the bigger lads, Arrabawn will be the next target.
“It’s survival of the fittest. If we want to stay still, that’s grand, but it’s not a great strategy,” he added.
Board members
A board member, one of several to speak in favour of the merger from the floor on the night, said he felt Arrabawn is in a far better position to pay back this debt than it was when it took on debt to develop the casein plant a number of years ago.
“I think, to be honest with you, it’s a no brainer. This is going to secure the future of Arrabawn farmers,” he said.
The board member added that there is “bad feeling around here in relation to what happened in Kilconnell”, referring to the closure of Arrabawn’s liquid milk plant outside Ballinasloe last year.
“I don’t think you can make any comparison to that,” he added.
Another board member said a key element to the deal’s success would be making the Tipperary town plant profitable - with that done, the larger milk pool would put the new co-op in a strong position.
“It would keep out the likes of Tirlán and Dairygold coming in and poaching our suppliers. It would sustain us and strengthen us for the next 20 years,” he said.
The comments were met with a cautious round of applause, the only one on the night.
A farmer pointed out that management will be key in making Tipperary Co-op’s operations profitable.
“That’s all lovely, ‘if’ we can get the right management. When I was at national school, they told us, ‘if was never the beginning of a true story’. So it’s vital that ye get the key people in place that are able to make it profitable,” he added.
The vote
The vote on the merger will take place on 7 November in Nenagh for Arrabawn suppliers. It will need 75% in favour to be passed outright.
If more than 50% and less than 75% is reached in favour, a further vote will be held two weeks later where the merger can be passed on another 50% vote.
Tipperary Co-op suppliers will vote under the same conditions in Tipperary town on the same day. Both co-ops must approve the deal for the new entity to be formed.
One supplier on the night commented that it is “a kind of Lisbon Treaty”.
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