Wednesday 26 April 2017

Glanbia shares surge after details of dairy sale emerge

At the announcement that Glanbia Co-op had reached agreement with Glanbia plc to acquire its Irish dairy and agri businesses were,
from left, Micheal Horan, group finance director designate, with Liam Herlihy, chairman of Glanbia Co-op, and Geoff Meagher, interim
group managing director.
At the announcement that Glanbia Co-op had reached agreement with Glanbia plc to acquire its Irish dairy and agri businesses were, from left, Micheal Horan, group finance director designate, with Liam Herlihy, chairman of Glanbia Co-op, and Geoff Meagher, interim group managing director.
Laura Noonan

Laura Noonan

SHARES in Glanbia surged more than 8pc yesterday as the plc wowed investors with the terms of the mooted sale of its dairy business to the Glanbia Co-op.

The co-op now looks set to pay more than €340m for the assets, well above the analysts' expectations, after its board agreed terms with the plc following six weeks of intensive negotiations.

But any deal will need the approval of more than 75pc of the co-op's 8,000 shareholders, a prospect some observers say was made "less likely" by the terms revealed yesterday.

"There remains a formidable challenge to bring this transaction to completion," said Bloxham's food analyst Joe Gill, echoing sentiments expressed by other analysts.

Both Glanbia plc boss John Maloney and co-op chairman Liam Herlihy, however, expressed confidence that the deal would be accepted by co-op shareholders who must vote it through at two separate meetings in May.

Sweetner

The detail of the deal sees the co-op agree an "embedded value" of €320m for the business, but the actual value of the transaction will depend on how much the co-op can raise from selling shares it holds in the plc.

The plans envisage selling off 102 million of its 160 million plc shares, reducing its shareholding from 55pc to about 20pc. If the shares are sold for €2.65 apiece, the deal will be valued at a straight €320m.

If they're sold for anything above that, the extra will be split between the co-op and the plc. Shares closed at €3.30 yesterday. Assuming a lower price of €3.10 at the sale time, the plc would secure a price of €343m for the deal.

The co-op also plans to transfer another 28.5 million of its plc shares to co-op members in September, allowing those members to sell them on the open market and reducing the co-op's shareholding to 10pc.

Mr Herlihy yesterday strongly denied that the "sweetner" of giving co-op members access to the proceeds from that 10pc was needed to get the deal over the line.

Admitting the distribution was the "only contentious issue" at plc level, Mr Herlihy said the mechanism was designed to give "some level of equity" to the 10,000 retired farmer shareholders who aren't entitled to vote. "I've said very clearly (to voting farmers), if you're going to vote for this just because of the transfer of value you're doing the wrong thing," he stressed.

Geoff Meagher, the former cfo of Glanbia plc who's being lined up as the co-op's interim managing director, said the main drivers behind the deal were the potential to grow the Irish dairy market and to smooth the volatile milk price being paid to farmers.

Dairy quotas are set to be abolished in 2014 and Mr Meagher argues that this deal will help clear the way for massive expansion in Ireland's dairy industry. Mr Meagher said that while Glanbia plc could "no doubt" develop the dairy business he didn't think it "can or will be a priority" given the higher margin expansion prospects in the plc's international portfolio.

The co-op bosses also confirmed they expected to spend "€3m or €4m" to get the deal over the line including payments to advisers KPMG and William Fry and spends on engaging with co-op members.

Irish Independent

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