Dairygold split must deliver long-term value
The on-off deal looks to be back on track and a contract could be signed this week. The market put a value of €170m on the business.
It is believed, however, Kerry was not prepared to fork out that much for the division that Reox boss Jerry Henchy had previously indicated he wanted to sell.
His rationale was the lack of scale of the brands made it impossible for the business to stand up to the power of the multiples in either the British or Irish markets.
With that realisation came the end of the “twin island” strategy for the consumer foods division.
It was part of Dairygold’s initial aim under Jerry Henchy to take on those markets and through acquisition and organic growth, to develop a considerable business.
Henchy had told journalists some time back that development of a big consumer food division looked impractical given the lack of scale of the business.
That, in effect, put a “for sale” sign on the business, and within six months, Ion Equity was knocking at Henchy’s door — or perhaps it was the other way around...
No sooner did word of the Ion talks get into the market, but other parties started to line up to have a look at the business.
After much rumour and speculation, Kerry Group finally got involved and it looks as if Jerry Henchy, a former Kerry Group executive, looks to have tied the knot with his former employer.
If the deal goes ahead, it will mean the end of an era for a range of brands from Galtee to Calvita, developed primarily by Mitchelstown Creameries and Ballyclough, before they merged to form Dairygold.
Shortly after taking over as chief executive of Dairygold, he secured the backing of farmer shareholders at a crucial AGM of the group in 2003, which came with the forced resignation of the 10 board member.
It followed a vote of no confidence that left the board with no choice but to step down.
Opposition to the change was palpable, but it was equally the case that Dairygold was a basket case by the time the new chief executive was appointed because tough decisions on rationalisation were dodged after the merger that formed the enlarged dairy group.
At the time Dairygold was producing out of four locations and Henchy described the co-op as a slumbering giant. Since then his every move has been designed to bring the group into line with best practices.
Much has been achieved since then and the breakup of the business into two separate business units involving milk processing under Dairygold Co-op with the consumer operations, property and DIY under Reox has set out the terms of reference for the group in the years ahead.
So far the rationalisation of the group has been driven ahead forcefully, showing Henchy’s determination to push though the reforms needed to put Dairygold and its farmer shareholders in a position that guaranteed their livelihoods.
In the case of the consumer food division, the line from the company was it would not be sold unless it represented “compelling value” to shareholders. That now looks to be the case.
However, delivering long- term value to shareholders remains a challenge and the group will need to move beyond the slash and burn phase of the current strategy if its ambitions are to be realised.
Selling out the consumer division may be strategically correct, but farmers will soon start to demand more than the end of one era, which puts the spotlight on the chief executive, in the period ahead.
