Friday 17 November 2017

Glanbia planning to spin off milk processing before axe on quotas

Peter Flanagan

Peter Flanagan

GLANBIA is to spin off its milk processing business into a joint venture between the firm's PLC and co-op under plans drawn up ahead of the removal of milk quotas in three years' time.

In a statement yesterday, the company said it was in talks with the co-op about creating a joint venture for its Dairy Ingredients Ireland business that will be 40pc owned by the PLC and 60pc controlled by the co-op.

Under the proposal, Glanbia will look to build a new milk processing plant in Belview, a port in Co Kilkenny that also serves Waterford.

The new plant will be about two-thirds the size of the company's Ballyragget facility, where the company runs the largest integrated milk processing plant in Europe.

Greenfield

It is expected to be built on a greenfield site owned by the IDA in Belview, and to that end the company is finalising an option to buy the site from the development authority.

Talks between the PLC and co-op are expected to carry on into August at least.

The announcement finally brings to an end speculation that has surrounded Glanbia's plans for how it will deal with an expected spike in milk production in 2015, when the European Union removes caps after more than 30 years.

Close to half of Glanbia's farmer suppliers have indicated they will produce more milk after the quotas are removed.

Companies in the sector have been planning for the landmark for sometime, but Glanbia's arrangements had been impeded by disagreements among company directors about how best to proceed.

Talks broke down between John Moloney's firm and Dairygold amid divisions at board level in Glanbia and Dairygold's insistence on the use of the co-op model. Glanbia did not give details on how the joint-venture would be financed, and this is unlikely to be decided once and for all until August.

Speculation

The project is expected to cost as much as €200m altogether and speculation immediately turned to whether the co-op would need to dilute its 54pc shareholding in the PLC to make the deal work.

The co-op would only be able to raise about €45m if it was to sell some shares but retain 50pc of the PLC. Even with additional funding from Enterprise Ireland that will leave the venture about €100m short of the required funding.

Davy Stockbrokers John O'Reilly said the new company would likely be a totally separate business from Glanbia, with a separate management scheme.

"The new company can focus on, and invest for, the medium-term organic growth prospects within Irish milk and it can also participate in what may be a consolidation of the Irish milk processing sector.

"The PLC will be able to focus uniquely on its global cheese and nutritionals activity.

"The funds received from the sale of its 60pc interest, prospective new configurations for its agri and consumer activities which are not part of the proposed transaction and its unrestrained ability to focus on extending the scope of its nutritionals should result in a speedier development of this activity.

"That Glanbia co-op, at least at the outset, may retain a majority stake in the PLC should not result in a funds limitation for investment in nutrition."

Glanbia's shares closed unchanged at €5.50 in Dublin last night after see-sawing between losses and gains.

Irish Independent

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