Business Farming

Friday 22 August 2014

All sides must be heard in the Glanbia debate

Published 05/09/2012 | 06:00

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Glanbia's proposals to deal with the expected surge in milk volumes post 2015 are certain to dominate farmer discussions, particularly in the east and southeast, over the next few months.

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At last week's announcement, Glanbia chief executive John Maloney described the proposals as a balanced plan that sought to deal with the needs of Glanbia Co-op and Glanbia PLC.

But concerns have already been raised, with four Glanbia board members coming out against the initiative at a meeting of the Glanbia council last week.

The IFA, while welcoming the move in principle, has also said that assurances will be needed on a number of issues such as milk price and credit lines to farmers from Glanbia Agri-business.

However, this is a complex package and the details of the proposals mean that plenty of time will be required to tease out areas of concern.

The changes being floated alter the very nature of the relationship between and PLC and the co-op and will have serious implications for shareholders, and particularly milk suppliers, into the future.

Issues raised by dissenting voices go to the very core of the deal and question the need for taking the co-op shareholding in the PLC below 50pc and thereby losing control of the company.

They question the obsession in some quarters with control of milk processing and point out that the changes under discussion would actually leave control of processing vested in another private company (Glanbia Ingredients Ireland or GII) where the co-op shareholding would be just six percent greater than that held in the PLC currently.

They also cast doubt on GII's ability to pay a leading milk price given the volatility in dairy commodity markets and the level of debt that it will have to carry. Debt levels in the business are forecast to peak in 2015 at three times EBITA or around €160m.

In Glanbia's defence, the proposals are a genuine attempt to deal with processing the additional milk that is likely to come on stream once quotas go.

It also frees up €122m in co-op equity in the PLC to be distributed to shareholders -- a key concern for retired co-op shareholders.

It is anticipated that the various votes on the proposal will not take place until November, leaving ample time for discussion.

Hopefully all sides will get a fair hearing for their opinions and the various shareholder meetings will not become a forum to push a given agenda. That approach backfired on Glanbia two years ago.

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