Thursday 21 November 2019

Kerry prepared to tap investors for merger deal

Food giant reportedly eyeing $20bn DuPont nutrition tie-up, with CEO Scanlon keen to focus on M&A

Edmond Scanlon, the CEO of Kerry Group
Edmond Scanlon, the CEO of Kerry Group
Ellie Donnelly

Ellie Donnelly

Kerry Group is prepared to ask its own investors to help fund a potential takeover "that would generate shareholder value", CEO Edmond Scanlon has told analysts.

He was commenting after the Irish food giant was linked to a possible $20bn (€18bn) deal to buy US chemicals giant DuPont's nutrition business.

A deal would mark the biggest in Kerry's history and, given their similar size, effectively be a merger of equals.

On a call with investment analysts yesterday, Mr Scanlon did not mention the DuPont deal specifically, but refused to rule out that a transaction could be in the works.

If needed, Kerry would look at raising equity to fund any such deal, he said.

"In terms of equity, I feel we would be prepared to go to shareholders for support in the event of a strategic opportunity that would generate shareholder value," Mr Scanlon said.

If some shareholders decided not to invest in Kerry, they would face the possibility of their holding being diluted.

Yesterday, Mr Scanlon, who took over from Stan McCarthy two years ago, refused to rule out further mergers and acquisitions (M&A) within weeks.

One possibility for Kerry is that Delaware-based DuPont could spin out its nutrition business into a new entity. That new business could then merge with Kerry - which is roughly the same size.

That process is called a "reverse Morris transaction" in the US, and would largely be funded by shares rather than cash.

"We continue to look at opportunities that are aligned to our strategic priorities," Mr Scanlon said. "I think the important point is the [M&A] pipeline is robust."

He said M&A was very much core to Kerry's strategy.

"We see M&A as something that has been a key driver of shareholder value over a really long period of time. We see it as a core competency within the organisation. It is really difficult to predict the exact timeline of when these acquisitions happen," he added.

"We see ourselves as a consolidator in the industry."

He continued: "We have talked in the past about scaling our business model and we feel we are really well-positioned in terms of generating significant shareholder value on any M&A that we look at."

Yesterday, industry analysts said that a deal with DuPont would be "hugely transformational" for Kerry.

Meanwhile, the Tralee-headquartered business reaffirmed its full-year 2019 guidance of adjusted earnings per share growth of 7pc to 9pc, on a constant currency basis.

The company reported 3pc growth in business volumes in the three months to September 30.

The performance was driven by Taste & Nutrition, where growth increased 3.9pc.

Volumes in its consumer food division were "muted, reflective of a subdued marketplace and the impact of the previously reported loss of a ready meals contract".

During the three-month period, Mr Scanlon, whose roles at the company have included heading up both its Chinese operation and its Asian operation, said that China had not been the highlight, with the dynamics having been "a little different" within the dairy and yoghurt sector.

Shares in the group were trading up by almost 4pc yesterday afternoon.

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