Co-op members in line for windfall

Glanbia co-op members could be in line for a €122m windfall if they agree to take a 60% stake in a joint venture with the Glanbia plc.

The €122m sweetener was added into the deal to make sure there is something in the offer for all co-op members, not just milk producers.

The deal proposes that the co-op pay €44.5m for a 60% stake in Dairy Ingredients Ireland, which is the current dairy processing arm of the Glanbia.

Dairy Ingredients Ireland (DII) will then become a joint venture, Glanbia Ingredients Ireland, which will focus on preparing for the abolition of milk quotas in 2015.

The joint venture will include the assets of DII which generated earnings of €44m before tax in 2011.

In order to fund the purchase, the co-op will sell 3% of its shareholding in Glanbia plc, taking its shareholding to 51.4%. To go ahead with this portion of the buyout, the co-op would require approval of at least 50% of its members.

However the co-op is also proposing that a further 10% of its holdings in Glanbia be released, reducing the co-op’s holdings in the plc to 41.4%. To do this would require approval of 75% of the co-op’s members voting on two separate days.

If this was approved, 7% of the shares, valued at around €122m, would be distributed to co-op members and the remaining 3% or €52m would be injected into the joint venture, Glanbia Ingredients International.

The acquisition can still go ahead if the co-op fails to secure the 75% approval of members required to lower its holdings below 50%.

A previous attempt to have the co-op buy out the Glanbia plc Irish dairy business for €343m narrowly failed when it was 2% short of the required 75% majority in 2010.

If that happened again, the co-op would finance the deal through a €10m loan from the plc, bringing their total investment to €62.3m.

If the co-op secures the 75% support, the joint venture would be fully funded to expand.

Co-op chairman Liam Herlihy said the time had come to change the co-op/plc model that had come into being in 1987 following the introduction of milk quotas.

“Now is the right time to evolve the existing co-operative and plc model which was introduced in the quota era that began almost 30 years ago. This joint venture will enable the co-op, on behalf of all members, to gain a direct 60% ownership of assets that are critical to milk production and expansion.”

The joint venture will use the money raised to fund expansion. If all of the proposals are approved, it would be established debt free and could independently fund milk expansion thereafter.

If the joint venture is approved Glanbia Ingredients Ireland will invest €150m in a new processing facility in Belview, Co Kilkenny, and a further €30m in expanding capacity at plants in Ballyragget, Co Kilkenny, and Virginia, Co Cavan.

Glanbia projects that the economic benefit of these projects would exceed €500m per year.

Glanbia chief executive John Moloney described the proposition as “compelling”.

“The proposed joint venture offers a compelling proposition for all stakeholders for the longer-term as it facilitates the desired expansion of dairy processing by co-op members and allows Glanbia to continue to focus on its successful international growth strategy.”