Farm Ireland

Wednesday 25 April 2018

Glanbia dissidents may have done farmers a favour by rejecting the takeover

John Shirley

At some stage in the future will Glanbia farmer suppliers and shareholders be grateful to the 27pc who voted 'No' in last week's shareholder meeting? Or has the 'No' vote held up the progress of the Irish dairy industry? Only time will tell, and we may never know for sure.

Given the desire of both the plc and the co-op leaders to part company, and the closeness of the vote, another attempt at a severance looks inevitable.

Prior to the vote I felt that there was a lack of critical analysis of the deal on the table. Once the Glanbia Co-op board struck the deal to buy out the plc, the objective of getting 75pc shareholder support was chased with a passion. Some farmers who attended the information meetings described them as indoctrination sessions. Shareholders were canvassed and recanvassed to vote 'Yes'. Old favours were being called in.

But the deal was complex and the intensity of the 'Yes' campaign made some farmers concerned and even suspicious. Grain growers in particular said the information meetings were all about dairy issues. Right up until the day of the vote, many shareholders were still undecided. Several of my neighbours did not go to the Kildalton meeting because they were undecided on their vote.

Prior to the day of the vote there was not a cohesive campaign against the deal. However, at the giant meeting in Kildalton, and fair dues to chairman Liam Herlihy, 'No' voters were given their opportunity to address the audience. It is reckoned that their arguments swung enough undecided voters into their camp to pull it over the 25pc threshold.

I think that farmers should be slow to let go of a high added-value business such as the Glanbia plc. In recent years Irish farming has lost Nestle chocolate crumb and the sugar industry (although there is some interest in re-investing for post-2013), and malting barley is under pressure.

Being forced back into producing the basic commodities leaves us vulnerable to the power of the multiples. Across the world, commodities are priced just below the average cost of production. Even in Ireland the price of eggs into the supermarkets is tied to the price of grain. In developing their food ingredients, Glanbia plc is breaking out of this retailer stranglehold.

It was accepted all round that the plc was coming out well of the proposed deal. They were offloading a low-margin business, solving their debt problem and ditching troublesome dairy and cereal farmers, all in one stroke.

Also Read

Apart from the attraction of unfettered control over their own business, the value of the buyout to farmers was less clear-cut. At every turn the targets were optimistic, almost aspirational, rather than realistic. The €70m 'cash earnings' included €20m in depreciation. Given the farmer pressure for higher milk and grain prices, a budget for a future €30m profit would be more valid.

Far from being free of debt, the new co-op would have been heavily indebted, especially when new investment is made in extra processing. Average borrowing of €200m is quite realistic under the proposed deal.

When it comes to management, John Moloney could be compared to a Henry Shefflin or a Brian O'Driscoll on the sports field. Moloney was to stay with the plc, leaving the co-op to go in search of a replacement. Talent like Moloney is not easily replaced.

The co-op board and other farmer backers passionately wanted the deal to succeed. As well as offloading the plc, they saw the takeover as an essential step towards solving the ills arising from a fragmented Irish dairy processing industry. It is envisaged that a strong, united dairy business owned by farmers north and south of the Border could offset the power of the multiples and eventually deliver better milk prices to farmers.

But the sums on the Glanbia deal must be improved.

As one ex-board member put it, Glanbia plc are so anxious to get out of Ireland and away from the co-op control that they would have walked with far less than the €343m. If the deal is to be revisited I reckon that it will take more than minor tweaking to get it past the winning post.

More farmers are now doing the sums on the deal. The 'No' vote has been energised. If the deal is rebalanced by even €100m in favour of the co-op, the 'No' voters in Kildalton will have done farmers a big favour.

Irish Independent