They buttered up the farmers but it's far from a 'done deal'
Published 21/04/2010 | 05:00
LISTENING to the rhetoric used yesterday, you could be forgiven for thinking the sale of Glanbia plc's dairy business to its co-op was a done deal.
Indeed, investors are so enthused they're already piling into the stock, driving it up another 8pc yesterday to leave prices more than 25pc higher than when the deal was first mooted.
In reality, though, the phrase 'done deal' is entirely inappropriate.
The transaction needs approval from 75pc of Glanbia's 8,000 active shareholders, a group which must vote it through not once but twice, in two separate meetings in May.
Co-op chairman Liam Herlihy spoke of a glorious new dawn where farmers will control their own destiny.
Not only will they be able to capitalise on the liberalisation of dairy markets, they'll be able to smooth milk price fluctuations.
Sure it'll all be great. But not everyone is so sure. The co-op talks a big game about expansion under liberalisation, but any such expansion is likely to require investment. Interim co-op boss Geoff Meagher says they'll have headroom of about €30m for "short-term decisions".
"If we're finding the level of expansion and growth is bigger than that . . . we'd need to look at wider industry solutions," he added.
If Glanbia thinks it has a battle on its hands trying to get this deal done, it will be nothing compared to the battle it would face in seeking to kick-start a revamp of a dairy sector that has been fiercely resistant to change over the past 20 years.
The valuation revealed yesterday also raised a few eyebrows. Herlihy insisted the deal represents good value for his members, notwithstanding the fact that the €320m valuation they've agreed to is well above the €250m to €280m mooted by analysts.
The co-op arrived at the price by taking a five-year earnings' average of €70m and applying a multiplier. One analyst points to the €70m as unrealistic since the last five years include several property gains. "A fairer starting point would be €65m," he suggests. Another says the deal overvalues the co-op by as much as €100m, pointing out that earnings last year were just €45m.
Another core issue is how to sell the deal to voters who are not members of the dairy farmer group that has the most to gain. Meagher says grain farmers, who make up another big tranche of the co-op's shareholder base, will ultimately see an uplift because a strong dairy industry will require more grain.
Perhaps the most telling statement came from the Irish Farmers Association. Having welcomed the deal when it was first announced, the IFA took a thinly veiled swipe yesterday, referring to the "vacuum of information" since.
The farmers' lobby went on to encourage shareholders to "satisfy themselves on all areas of concern" about the potential deal and announced plans for a series of meetings to discuss the "pros and cons".
Anyone thinking it's a 'done deal' could do worse than attend one of those.