EAMON QUINN: Glanbia and Tesco put focus on big food deals

Two separate deals yesterday sparked foods shares into life, as Glanbia eyed a big cheese expansion in the US, while Tesco unexpectedly unveiled a €4.3bn purchase of restaurants supplier Booker.

Glanbia announced “late-stage” plans for its third cheese operation in the US, involving a $400m (€373m) joint-venture plant in Michigan.

It already operates in Idaho and New Mexico. While it will own a 50% stake in the new operation, Glanbia, through debt management, may only have to contribute as little as $100m in cash upfront, said analysts.

The operation involves the Dairy Farmers of America, Michigan Milk Producers Association, and Foremost Farms. The new cheese plant will process 3.6m litres of milk a day.

It’s a “capital light” way of securing an additional source of supply, said Jason Molins, analyst at Goodbody Stockbrokers.

Glanbia shares ended slightly higher, by 0.3%, on the day.

“Although we estimate that the cost of this project will be circa $400m, we believe that it would require a substantially less investment by Glanbia of circa €100m in equity and the balance will be funded by off balance sheet debt,” said analysts at Merrion Capital.

Meanwhile, Tesco agreed a surprise £3.7bn takeover of food supplier Booker, increasing its exposure to the fast-growing catering sector.

Tesco shares rose 9% and Booker shares climbed almost 17%.

The planned cash and shares takeover shows the supermarket chain’s renewed confidence after two years of gradual recovery under chief executive Dave Lewis after an accounting scandal.

The group also said it would restart paying dividends for the 2017-18 financial year, having not paid one since the second half of its 2014-15 year when it was mired in the worst crisis in its history.

Mr Lewis joined in September 2014 when Tesco was rapidly losing market share to German discount rivals and has also had to deal with the fallout from the accounting scandal. The former Unilever executive has simplified operations, revitalising its core grocery business, while cutting costs and selling assets including its South Korean business.

Yesterday’s move marked a dramatic change of gear. “It’s the next evolution of our strategy... We think it’s the right time,” said Mr Lewis, adding the deal was compelling in its own right and not a reaction to a tougher competitive environment. He said the two firms had been talking for more than a year.

However, analysts said the deal could face close regulatory scrutiny, particularly because of its impact on customers at smaller convenience stores and food industry suppliers. Investors welcomed the transaction, which will see Booker chief executive Charles Wilson join the Tesco board.

“We were surprised, pleasantly,” said Richard Marwood, of Royal London Asset Management, a top ten Booker shareholder.

“Wilson has been a very well respected manager at Booker... Many people would see it as being a bit of coup having him go and work in Tesco.”

Tesco will gain exposure to the 120,000 independent retailers, 107,000 small businesses, and 450,000 caterers Booker serves. Booker clients include chains such as Wagamama and Carluccio’s, as well as celebrity chef Rick Stein.


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