Kerry Group has agreed to sell its dairy processing division in two stages to its main shareholder, Kerry Co-op, in a deal worth €500 million.
The publicly-quoted food giant confirmed on Tuesday morning that the co-op will initially take a 70 per cent stake in the business, known as Kerry Dairy Ireland, for about €350 million.
The co-op will have an option to require the remaining stake in the joint venture for €150 million by July 2030.
If this so-called call option is not exercised by that deadline, Kerry Group will have the right to force the co-op to buy the remaining interest by the end of 2035, the company said in a statement.
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The deal covers milk processing plants in the Republic and the UK and well-known brands such as Dairygold spreads, Charleville cheese and Cheestrings snacks. The business has 1,500 employees and will continue to supply Kerry Group.
The fresh accord comes after previous joint venture talks between both sides broke down in April 2021 after 18 months of negotiations.
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Kerry Group rejected the co-op’s offer at the time for a 60 per cent stake in the dairy processing business that would have valued the entire business at €600 million.
Kerry Group was said to have placed a valuation expectation on the dairy unit of about €800 million at the time.
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Kerry co-op owns about 11 per cent of the listed company. The deal will ultimately see the co-op disappear as a shareholder in the company as it uses 15 per cent of its Kerry Group stock to fund a deal and moves to distribute the remaining 85 per cent, worth €1.4 billion, among its own members.
Kerry Group executives said on a call that current and former co-op members already own about 20 per cent of the public company’s stock directly and this will increase their combined direct holdings to about 30 per cent.
Distributing more direct shares to co-op members will act as a sweetener for the 78 per cent of 11,906 members that either no longer supply milk to the business or never did.
The initial 70 per cent stake purchases will be partly funded by Kerry Group buying back €251 million of its shares from the co-op. The listed company will lend the co-op a further €43 million to fund the deal, while the remaining €56 million will come from third-party debt.
Kerry Group will be entitled to a fixed dividend of €7.5 million per annum during the period of the joint ownership.
Kerry Group, which floated on the stock market in 1986 and is currently led by chief executive Edmond Scanlon, has long left its dairy co-op roots behind to become a global taste and nutrition giant.
The higher-margin taste and nutrition division accounted for 86 per cent of the group’s €8 billion of revenues last year and 96 per cent of its €1.2 billion earnings before interest, tax, depreciation and amortisation (Ebitda).
Shares in Kerry Group closed 4 per cent higher in Dublin.
The development comes three years after Kerry Group sold its UK and Irish consumer foods’ meats and meals business – including brands such as Denny, Galtee and Richmond – to US poultry producer Pilgrim’s Pride for €819 million.
The board of the co-op drafted in a veteran of the industry – former Dairygold boss Jim Woulfe – early last year to advise on a strategic review, which ultimately led to a return of both sides to the negotiating table.
Kerry co-op chairman James Tangney and Mr Woulfe told The Irish Times that the final deal was struck on Sunday. Mr Woulfe suggested that the Kerrygold Dairy Ireland could ultimately, in time, buy out the interests of co-op members that are not active milk suppliers.
The latest deal will need the approval of 75 per cent of Kerry Group shareholders and 66 per cent two of the co-op’s three categories of shareholders: the active milk suppliers and former suppliers. It follows Glanbia initially selling a 60 per cent in its Dairy Ireland segment to Glanbia Co-op in 2017, with the remaining 40 per cent being transferred five years later.
Mr Tangney said that he is “every confident” that the deal will be passed by voting co-op members.
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