Q&A: Glanbia Ireland proposal
“It brings together in a single structure the ownership, operations and objectives of Glanbia’s Irish dairy and agri-businesses”
Glanbia plc last week announced proposals to sell 60% of Dairy Ireland to Glanbia Co-op and create the Glanbia Ireland joint venture, encompassing Glanbia Ingredients Ireland (GII), Glanbia Consumer Foods Ireland, and Glanbia Agribusiness, 60% owned by Glanbia Co-op and 40% owned by Glanbia plc.
Who owns Dairy Ireland, and what does it do?
Dairy Ireland is wholly owned by Glanbia plc. In 2016, Dairy Ireland delivered revenue of €616.2 million, and earnings before interest, taxes, and amortisation (EBITA) of €30.7m, 10.1% of Glanbia’s wholly owned EBITA.
Dairy Ireland has two main businesses.
Glanbia Consumer Foods Ireland is the leading supplier of branded consumer dairy products to the Irish market, as well as an exporter of long-life dairy products.
Glanbia Agribusiness supplies inputs to the Irish agriculture sector, and is the leading purchaser and processor of grain and manufacturer of branded animal feed.
Dairy Ireland has holdings in associates involved in primary manufacture and distribution of farm inputs. All Dairy Ireland manufacturing is based in the Republic of Ireland.
Who owns GII, and what does it do?
Processing one third of Ireland’s milk, from 4,800 farms, GII is Ireland’s No 1 dairy company. It was formed in 2012 from Glanbia’s ingredients division in Ireland. Glanbia Co-op owns 60% of GII, Glanbia plc owns 40%.
GII includes business sectors specialising in infant nutrition, health and wellness, dairy nutrition in emerging markets, consumer branded butter and cheese, bakery, and processed cheese.
Why is Glanbia Ireland recommended to shareholders?
Siobhan Talbot, Group MD, Glanbia, said: “Creation of Glanbia Ireland makes strategic sense for shareholders of both Glanbia Co-op and Glanbia plc. It brings together in a single structure the ownership, operations and objectives of Glanbia’s Irish dairy and agri-businesses.
With €1.5 billion of annual revenue and a 2.4 billion litre milk pool, it will be a large scale, efficient business with a high quality supply chain and the strength and diversity to face the future with confidence.
Glanbia plc will continue to focus on its global nutrition strategy through the platforms of Glanbia Performance Nutrition, Glanbia Nutritionals, and Strategic Joint Ventures for the benefit of all shareholders.”
The strategic rationale for Glanbia Ireland includes:
* building on the partnership between Glanbia Co-op and Glanbia plc since the creation of GII in 2012;
* integration of three strong, well-invested Irish based businesses to create value for all stakeholders;
* maximising opportunities created by expected continued growth in milk supply in the Irish supply base of Glanbia Ireland;
* creating a single platform for strategic investment, there are plans for investment in Glanbia Ireland of €250-300m between 2017 and 2020.
This will increase capacity to support Glanbia milk suppliers’ growth ambitions, and optimise value-adding opportunities. Financing will largely be sourced from dedicated bank facilities in Glanbia Ireland.
What’s in the non-binding memorandum of understanding?
At completion, Glanbia Co-op will pay Glanbia plc €112m for a 60% equity interest in Dairy Ireland.
Glanbia Ireland will acquire 100% of the working capital in Dairy Ireland, financed by banking facilities. The average three-year working capital in Dairy Ireland from 2014 to 2016 was about €92.5m.
Pension obligations associated with Dairy Ireland are included in the proposed transaction. These obligations amounted to about €60m, at financial year end 2016.
Glanbia Ireland will, from 2018, have a minimum annual profit retention policy after tax of 3.2% of net revenues, which will increase over time, depending on future value- adding investments.
The first €5m generated in any one year above the minimum profit target will be set aside, in a volatility fund. Timing and nature of payments from the fund will be at the discretion of the board of Glanbia Ireland.
Glanbia Ireland will have an annual target dividend pay-out ratio of 50% of profit after tax.
If the proposed transaction completes, Jim Bergin, CEO of GII Ltd, will be appointed CEO of Glanbia Ireland.
However, final terms may vary if and when final binding legal agreements relating to the proposed transaction are signed. Then, circulars will be published and sent to the shareholders of Glanbia plc and Glanbia Co-op, containing the key terms, and providing notice of the EGM.
What is the Glanbia Ireland timeline?
It is expected that binding legal agreements and appropriate approvals will be completed by mid-2017.
Glanbia Co-op plans a vote of its members to approve the transaction, requiring a simple majority of votes by eligible Co-op members present. The Co-op would finance the transaction with the sale of shares it owns in Glanbia plc, and existing resources.
Glanbia Co-op will hold a separate vote on related proposals, requiring not less than a two-thirds majority of eligible Co-op members present. These proposals are:
* sale of up to 3% of issued share capital in Glanbia plc to finance the transaction and part finance a proposed member support fund;
* spin out of 2% of issued shares of Glanbia plc held by Glanbia Co-op directly to its members on a pro rata basis, based upon their individual holdings in the Co-op;
* a rule change allowing the Board of Glanbia Co-op discretion to further reduce the Co-op’s shareholding in Glanbia plc to 28%, as well as requiring further member approval for any proposal to reduce the Co-op’s shareholding in Glanbia plc below 28%.
The resolution to create a €40m members’ support fund, which is linked to all of the above proposals, requires the approval of eligible members present by a simple majority.
If all proposals are approved, there will be a further reduction of Glanbia Co-op’s representation on the Glanbia plc board by one director in 2022, taking the Co-op’s representation on the Glanbia plc Board to six directors.
Glanbia Co-op holds 36.5% of issued Glanbia plc shares. If all proposals are approved and executed in full, the Co-op would own about 31.5%.
As the joint venture transaction is between related parties, it will require the approval of Glanbia shareholders at a general meeting, excluding the Society and its associates.
If the transaction completes, all consideration will be settled in full with cash. Glanbia plc intends to initially use the proceeds from the sale to pay down existing debt.
What do farmer organisations think of Glanbia Ireland?
ICMSA President, John Comer, said the Glanbia organisations have to convince farmers there will be a financial benefit. He said farmers will focus primarily on whether they may receive a stronger milk price, and competitively priced farm inputs.
IFA President Joe Healy welcomed the commitment to support farmer members in the proposals. He said paying a commercially competitive base price was crucial.
ICOS welcomed the announcement, saying that taking a majority ownership stake in the businesses that impact on members demonstrated the ambition of Glanbia Co-op.
According to ICOS, it is a strong endorsement of the co-op model, as the most appropriate mechanism to strengthen the position of farmers.
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