Kerry co-op will cease to be a shareholder in Kerry Group in deal to buy dairy business
The Board of Kerry Co-operative has confirmed that it has reached agreement with the global food ingredients giant Kerry Group plc to acquire its Consumer Foods Products and Dairy Ingredients business, Kerry Dairy Holdings Limited in two stages – 70% before end of January 2025 and 30% in the period up to 2035.
After years of speculation and controversy over the proposal, the deal which will see the the Co-op will cease to be a shareholder in Kerry Group, was announced by the co-op in a statement this morning.
To facilitate the proposed transaction, the Co-op said it is recommending to its members a share exchange whereby all Co-op members will be given new Kerry Group shares in exchange for 85% of their Co-op shareholdings; at a rate of 6.25 Kerry Group shares per Co-op share currently held.
It said for Irish resident individuals, there should be no upfront tax charge as a consequence of this transaction, and any tax on capital gains should only become payable in the event of a subsequent sale or transfer of the Kerry Group shares concerned.
The Co-op will also recommend that the Kerry Group shares held by Kerry Co-op c.15% will be re-invested, with additional borrowings, to acquire Kerry Dairy Ireland in two stages, in which all Co-op members will participate, retaining all current rights in the same proportions as A, B and C shareholders of the Co-op.
It said acquiring Kerry Dairy Ireland will give the Co-op ownership and control over the region’s milk processing assets, together with valuable consumer brands, which are critical to securing the future of dairy farming families in the region.
The proposed transaction will only proceed if approved by the requisite majority of the Co-op’s A and B shareholders present at a Special General Meeting (“SGM”).
This SGM will be convened at the Gleneagle INEC Arena, Killarney, Kerry at 12 noon on Monday 16th December 2024.
The proposed transaction is also subject to the approval of shareholders of Kerry Group.
Kerry Co-op currently holds a c.11% shareholding in Kerry Group having a value, as at 8.11.2024, of c €1.7bn.
Following the proposed share exchange, the Co-op will cease to be a shareholder in Kerry Group, the value of the Co-op’s current c.11% Group shareholding will in effect, be redeployed as follows the co-op said:
85% (having a value of c. €1.4bn as at 8.11.2024 will, through the share exchange, be held directly by Co-op members, putting substantial value into the hands of Co-op members alongside future dividend entitlements from Kerry Group.
15% (having a value of c. €251m as at 8.11.2024 will provide equity finance for Co-op’s acquisition of a 70% interest in Kerry Dairy Holdings. €56m of the debt finance requirement will be provided by third party banks with the balance of the debt finance required (which will vary depending on the Group’s share price in the lead up to completion, which will determine the value of the equity finance realised) being funded by a loan agreement from Kerry Group.
The Co-op said following negotiations between Kerry Co-op and Kerry Group, taking into account historical performance, the market outlook, the business forecasts and the wider strategic benefits available to the Co-op, an agreement has been reached which sets out a €350m consideration for the Co-op’s 70% interest in Kerry Dairy Ireland.
This it said was based on a total Enterprise Value of €500m.
Under the proposed deal the Co-op will have a call option to acquire the final 30% stake exercisable at any time from completion of the 70% acquisition until 31 July 2030.
If the call option is not exercised, Kerry Group will also have an option (whereby they may require Co-op to acquire the final 30% stake) exercisable from 1 August 2030 until 31 July 2035.
Funding for the final 30% stake in Kerry Dairy Ireland will also be a mix of equity and retained cash in the business and debt.
The co-op said the funding model represents a sustainable financial plan that will not overburden the business with debt and retains the ability to invest in growth and to support milk pricing.
Share spin out
With regard to the de facto spin out of shares, the Co-op said Kerry Group shares to the value of €1.4bn as of 8.11.2024 will be held directly by all Co-op members, putting substantial value into the hands of members alongside a potential future increased income stream from Kerry Group share dividends.
It also said all Co-op members will be able to trade the Kerry Group shares received by them at a time of their individual choosing and will not be reliant on a grey market for Co-op shares or redemption schemes run twice yearly.
"The proposal gives all members more flexibility in managing their share value and solves an issue for many who have been seeking a mechanism to access the majority of the value of their interest in Co-op shares.
"Co-op members will directly benefit from any increase in Kerry Group’s share price through Kerry Group shares retained by them," it said.
Co-op members were advised to receive their own individual tax advice, but it said the tax implications arising from this transaction are typically different to the tax implications of the existing Co-op share redemption scheme.
"Any sums received under the Co-op share redemption scheme are typically subject to income tax in the hands of the recipient (this statement does not apply to corporate entities)," it said.
Capital gains tax (currently 33%) should only become payable by Co-op members who are resident in Ireland, it said, in the event of a subsequent sale or transfer of Kerry Group shares received (with the relevant base cost being derived from the original base cost of the Co-op shares exchanged for the Kerry Group shares concerned).
Commenting, James Tangney, Chairman of Kerry Co-op said he was very pleased to have reached an agreement that will ultimately deliver full ownership of one of the leading dairy businesses in the country, while also, in effect, releasing c.85% of Kerry Co-op’s Kerry Group shares into the hands of its members to be retained or sold by each of them at a time of their choosing.
“Kerry Co-op and Kerry Group have a shared heritage that has helped create value, pioneer change and shape the dairy industry, but we have come to a fork in the road where both organisations require the freedom to grow in a manner best suited to the needs of their stakeholders. As direct shareholders in the plc, members will continue to gain from the Group’s progress and, in tandem, the Co-op will focus on ensuring Kerry Dairy Ireland becomes a platform for future growth. It will also give farmers a greater voice in a business that is critical to their farming futures.
“The proposed transaction is transformational in nature and has been approved by the Board. We believe the proposal being put to members will satisfy the diverse aspirations of our shareholder base and believe it offers the best opportunity for Kerry Co-op to move forward in a new direction with confidence. Over the coming weeks, Kerry Co-op will engage extensively through a series of local meetings with members so that they can make an informed decision at our upcoming Special General Meeting on Monday, December 16th in the Gleneagle INEC Arena, Muckross Road, Killarney, Co. Kerry at 12 noon.”
Edmond Scanlon, Chief Executive Officer of Kerry Group said the proposed transaction represents a significant step in Kerry’s 50 year journey.
"Our strategy of continuous business development and portfolio evolution aligned to our customers has been a key underpin of Kerry’s success over the years. The proposed transaction will result in a global leader in taste & nutrition solutions and an end-to-end industry leader in dairy. Both businesses are perfectly positioned for success, thanks to the dedication and extraordinary contribution of our people over the years.
“On completion, Kerry will become a pure play global business to business taste & nutrition company, with sustainable nutrition at its core, while also supporting our financial objectives of continued market outperformance, strong margin progression, and delivering greater returns for our shareholders.”
Milk Supply Agreement
With effect from completion of the Phase 1 Transaction, Kerry, Kerry Creameries Limited (a subsidiary of Kerry Dairy Holdings (Ireland) Limited) and the Co-Op have agreed that a fund of €50 million be established and funded by Kerry within Kerry Creameries Limited for the resolution of the ongoing dispute and related claims and arbitrations between Kerry Creameries Limited and certain milk suppliers in relation to the milk price paid and payable by Kerry Creameries Limited to certain milk suppliers pursuant to the Milk Supply Agreement which remains in place until 2026.
Once the fund has been established the parties have agreed that Kerry will have no liability for any existing or future claims from Milk Suppliers under the Milk Supply Agreement. Separate communications with further detail in this regard will be issued by both the Co-Op and Kerry Creameries Limited to such milk suppliers.
Reporting on:independent.ie