Dairygold is right to consider its options well
It’s an interesting development for a number of reasons. The decision follows extensive consultation between senior management and farmers about the group’s future.
When word got out that a special general meeting had been convened for January 12 expectations rose that a flotation of the non-dairy parts of the business including consumer foods, 4Homes and the property side were all heading for the stock market.
Before that postponement of the share trade due before Christmas fuelled the belief that something was indeed imminent and that the most likely scenario was the announcement of a flotation within the next 12 months.
Chief executive Jerry Henchy created expectation initially the consumer division held out a lot of promise and he identified it as a candidate for bringing that division to the market.
It is not clear whether Henchy would still like to go sooner rather than later with a stockmarket launch of the non-core operations of the group.
I get the impression his attitude on that front has mellowed however and that he has other fish that have to be fried before he even thinks about taking that step.
But what has emerged is that farmers do not want to see their grip on Dairygold flittered away unnecessarily to big financial institutions whose only concern would be the share price and capital growth of their investments.
In that scenario price of milk would be a very secondary consideration and framers who have watched the fate of Waterford Goods and Avonmore over the years will not have been inspired by their evolution and their forced merger to form Glanbia.
With the exception of Kerry Group the outcome for farmers who backed the flotation of the other dairy groups, including Golden Vale, since absorbed into Kerry, has been pretty dismal to say the least.
In the end the road to hell is paved with good intentions and while the Irish dairy sector was lauded at one point as the most aggressive in the takeover market in Britain it lost millions in the end and were forced to withdraw from several segments of the market including the liquid milk end of the business.
In the meantime farmers saw their milk prices decimated and their share values in the former co-ops seriously eroded.
While the slow down of talk of a stock market debut for some of the operations may represent a thwarting of Henchy’s earlier ambitions, past experience suggests the approach currently proposed looks like it is making a lot of sense. It suggests also that the consumer division had a lot less in the tank than Henchy believed to have been the case when he took over as boss of the beleaguered group.
So when farmers in Dairygold come to vote on 12 January to change the group’s structure the short term implications of their decision will be a lot less radical than some imagined.
That is not to say that developments have come to a halt within the group.
Significant movement is taking place across the property division as well as 4Homes. Ironically they may offer quicker value to the group than the consumer division, which has become a notoriously difficult market for any company to survive in, over the past decade. In that context Dairygold is right to consider its options well before making any final decisions about a future flotation of part of its operations.
It is hard to imagine however, that somewhere down the line there will not be a flotation. Henchy has said the only purpose of such a move is to raise finance and as the group has access to €500 million in bank debt at pretty competitive rates at the moment, the pressure to go that road has been removed, or so it would seem.
