IFA, ICMSA unhappy that €41m package proposed from co-op funds
According to IFA National Dairy Committee Chairman Richard Kennedy, Glanbia Plc has increased their April producer milk price by 1.32c/l (6c/gal) up to 25.22c/l plus VAT. But a proposed additional 0.66c/l (3c/gal) to be paid retrospectively from January would come from Glanbia Co-op. Mr Kennedy said the full proposed 1.98c/l (9c/gal) April price increase should come from the Plc.
Glanbia Co-op owns 54.8% of Glanbia plc. A co-op special general meeting will be necessary in mid-year, where farmers will be asked to vote on the proposed €41 million in 2007, 2008 and 2009 for milk price, grain bonuses, a spin-out of 1.6 million Glanbia plc shares, and a guaranteed 4% dividend on co-op shares.
Mr Kennedy said shareholders must “consider very carefully” how they might vote. “I see no reason, when returns for the main commodities have increased by 6c/l in the last nine months, why the full milk price payment cannot be made by Glanbia Plc,” he said.
ICMSA chairman Jackie Cahill also had misgivings, saying payments from the co-op to farmers were no more than the distribution of co-op farmer shareholders’ accumulated assets.
However, there is little prospect of Glanbia Plc coming up with the €41 million package on offer from the co-op. Management of the plc have committed to worldwide investment as high as €150m this year, even before including potential acquisitions. And plc stockholders have come to expect a steady pace of investment in growth, which has brought them a reasonable dividend.
Last year, at a special general meeting, co-op shareholders approved a 2006 milk bonus of 8 cent per gallon (about €20m) from co-op funds. And the package now on offer has been cleverly designed to tempt co-op shareholders to dip into their family silver again. Following gains in a few months of upwards of 20% in the Glanbia plc share price, the €41m package can be funded from co-op resources and the sale of up to 6.8 million plc shares — without reducing the co-op shareholding in the plc below 51%.
This assurance is further strengthened by a stipulation that 2008 and 2009 payments from the package would be contingent on Glanbia plc earnings growth of at least 10% per annum — a not unlikely prospect, now that the group’s investment in the huge US cheese market has begun to reap considerable dividends. Glanbia predicts earnings growth of at least 10% this year, encouraged by the 55.6% growth in ingredients profits in the second half of 2006. Plc managers are unlikely to interrupt this “roll” to divert millions earmarked for further global expansion into Irish milk prices. Management also has the view that the co-op and plc are inextricably linked, and that milk suppliers always have the option of selling down a couple of per cent of the co-op’s holding in the plc, to cushion milk price difficulties.
