Unease at Glanbia despite boom

They are, if you like, inactive members of the Co-op, but shareholders nonetheless. The A1 voting shareholders are the ones who are actively trading with the co-op

It’s a good year for Glanbia, with their share price advancing about 30% since March — and awards along the way, such as the Kerrygold Cup for cheese, shown here by the Glanbia Ballyragget Cheese Team, from left, Gerry Stuart, Vinny Cleere, Jim O’Neill (operations manager, Ballyragget), John Brennan, Breda Walsh, John Dunne (master cheese grader), John Phelan, Tom Lonergan (production manager), John Butler, Liz McDonough, Tim Purcell (cheese plant manager), James Daly, Ger Butler, Shane McDarby.

Glanbia is a bright economic beacon in these dimly-lit times.

In modern business-speak, it’s a “global” company.

Valued at about €2bn, it employs more than 4,500 people in 14 countries.

Its shares have been trading at just over €6 — almost double the value that they were a couple of years ago — and it has recently acquired US dietary beverages company Aseptic Solutions for €50m, adding to an increasing portfolio of companies in this high-margin sector.

The company recently announced that it’s about to gear up for the coming liberalisation of the EU dairying industry, with the purchase of a greenfield site in Co Kilkenny where, it is planned, a new state-of-the-art dairying processing facility will be built.

These are positive times for shareholders, suppliers and observers alike. But within the Glanbia group there is one significant sub-group of participants who appear to have been left behind in the great strides forward that the company has made.

They are the A3 shareholders in Glanbia Co-op, numbering about 8,500. This represents about 55% of the shareholders in the co-op, and about 35% of the co-op shares. It’s a grouping that is composed mostly of retired dairy farmers, and many of them were the shareholders of the original Waterford Co-op.

Back in the early 1990s these shareholders were asked to help to fund the ailing Waterford Co-op in preparation for their planned merger with Avonmore Dairies, by contributing £1 for every gallon of milk they produced. Initially, this investment was to yield a return for the contributing farmers, but shortages of cash meant that the investment rolled over, and their money is still in the form of Co-op shares.

Now, Glanbia Co-op owns 54.5% of Glanbia PLC.

But A3 shareholders don’t have any Glanbia Co-op voting rights. They are, if you like, inactive members of the Co-op, but shareholders nonetheless. The A1 voting shareholders are the ones who are actively trading with the co-op.

In a statement in June, the Glanbia Group (comprising both the Co-op and the PLC) announced that the new dairy processing unit would be a “joint venture” between the co-op and the PLC, with the co-op taking a 60% stake in the new business.

How this venture will be financed is yet to be decided.

The plight of the A3 shareholders and the fear amongst many of them is that, without a voice in the matter, their hard-won capital will be once again rolled over into a new business — a business without any real expectation of dividends for some years to come — but vital as the processing outlet for increasing milk production after 2015 by active dairy farmers, the A1 shareholders.

Co-op shares can’t be traded on the open market in the same manner that PLC shares can. There is an internal trading system, where they might realise about €2 per share, by selling to an A1 shareholder. Yet, their shares are, in theory (going by current valuations of the PLC), potentially worth up to €20 per share, if the right mechanism can be found to unlock that value.

The dilemma for the A3 shareholders is that it appears they have little control over what happens next, and the fear is that they could very well not see a return on their investment — yet they were the ones who provided much of the funding for the business when it was purely a co-op.

It all goes back to when the constitution of the current formation of the Glanbia group was being thrashed out back in 2001.

Commitments were given that these A3 co-op shareholders were to be treated equally in financial terms to A1 shareholders.

“That commitment was given at that meeting no fewer than seven or eight times that every shareholder was an equal person in every respect,” says co-op shareholder Michael Veale.

“At the time, I was the only one of 83 members that voted against the changing of the constitution,” says Veale, “on the grounds that it would create a high proportion of A3 shareholders, and that there was no monetary system put in place to compensate them. Put it another way, these people own €330m.”

The vast majority of the shareholders were from the original Waterford Co-op and were, perhaps, naively trusting that all members would get an equal share in the economic benefits that were to come, but they have not come their way.

“At the time, there were maybe about 25,000 shareholders in Waterford Co-op. Every one of them was notified about the meeting, but most of them probably didn’t turn up, and the implications for them were severe. Now, you have about 18,000 shareholders, and 53% of them are A3 shareholders.”

Compare the situation with that of Kerry Foods. There are significant differences in how the two companies evolved, but in Kerry you also have a PLC that came from a co-op, and similar A1 and A3 shareholder categories to separate the active and inactive co-op shareholders.

The significant difference is in how the co-operative shareholders — the original funders of the company that became Kerry Foods — were prioritised and rewarded for their contributions. As the co-op sold off their interest in the PLC in stages, A3 shareholders were given a financial spin-off every time, making millionaires of many shareholders in the process. In the case of Glanbia, A3 shareholders can only look on in dismay at a notional enrichment — while at least one of the executive officers in the PLC received remuneration totalling €2m in the last financial year.

Meanwhile, the A3 shareholders may once again find themselves footing the bill to fund a new venture that the PLC is clearly not too interested in, opting instead to divert millions into newer products with more cash appeal, such as the recently-acquired US drinks company.

When contacted, a spokesperson for the Glanbia Group said that the plight of the A3 shareholders was “of concern”, but the issue was tied up with the current negotiations between the co-op and the PLC, which are ongoing.

The same spokesperson was unable to ascertain whether or not efforts were being made to find a mechanism by which the A3 shareholders could be rewarded for their efforts in a manner approaching that which they had been promised back in 2001.