The Kerry Co-op board is understood to have made a formal decision to advance the purchase of a 60pc majority share in Kerry Group’s primary dairy business.
Unconfirmed reports put the value of the offer at €660-670 million, with the deal involving the purchase of Kerry Group’s main milk processing and trading facilities at Listowel, Farranfore, Newmarket and Charleville, plus the company’s dairy spreads business at Ossett in West Yorkshire.
The board decision means the proposed purchase could now move to due diligence.
It is understood that Kerry Co-op’s 12.7pc shareholding in Kerry Group, which is valued at €2.4 billion, will be spun out to shareholders under the agreement.
While the final details of the funding model have to be agreed, it is believed that milk suppliers will be encouraged to invest in a new farmers’ co-op to purchase the 60pc majority stake in Kerry Group’s dairy business.
A ‘hair-cut’ on the share transaction, in addition to new borrowings, will complete the financing of the purchase.
The proposed share transaction will be subject to capital gains tax, which will be more attractive to the co-op’s dry (non-trading) shareholders than the current share redemption scheme which is subject to income tax.
A spokesman for Kerry Co-op said the society was “not in a position to comment” on reports of a deal with Kerry Group.
Meanwhile a Kerry Group spokesman said: “Kerry Group as a matter of policy does not comment on speculation regarding any such matter.”
However, industry sources insisted that a deal is very close to being agreed and that the Kerry Co-op board has now committed to completing the negotiations and finalising the purchase.
Dairy industry sources said that the manner in which the deal is structured means that Kerry Co-op will not need the approval of an extraordinary general meeting (EGM) to get shareholder approval for the purchase plan. However, it is still not clear whether or not an EGM will be called.
The historic deal will leave Kerry Group with a 40pc stake in the business. However, it is envisaged that Kerry Co-op will buy out the remainder of the business over time.
It is also believed that the existing management team will remain in place to lead the business under the new ownership structure.
Kerry Group’s milk processing business is valued at close to €1.2 billion and delivers profits of between €80-100 million each year.
It is understood that the purchase also covers Kerry Group’s animal feed mill in Farranfore, as well as its network of agri-stores.
The deal if agreed will see Kerry Co-op, which was established in 1974, return to the big league of milk processors, with the business having a milk pool in excess of 1.2 billion litres.
Along with Kerry Group’s milk processing facilities in Listowel, Charleville and Newmarket, the purchase also includes the dairy spreads concern at Ossett outside Leeds, and the infant formula business at Charleville.
Kerry Group’s dairy division is a major producer of cheddar cheese and casein, as well as demineralised whey, skim milk powder and specialised protein ingredients.
Relations between Kerry Co-op and Kerry Group have been severely strained over the last number of years due to conflicting interpretations of a commitment by Kerry Group management to pay Ireland’s ‘leading milk price’.
There have also been differences within Kerry Co-op over the preferred manner in which shareholders could realise the value of the society’s €2.4 billion shareholding in Kerry Group Plc.
Supporters of Kerry Co-op’s purchase proposal view it as “workable compromise” that goes some way to satisfy the differing aspirations of the various parties.