Dairygold reveals group split plan

DAIRYGOLD has outlined plans to split the group into two independent operating divisions.

Under the new proposal Dairygold Co-op will retain the milk and agri-trading operations with consumer foods, 4Home and Alchemy Properties to be transferred to a new company Reox Holdings Plc.

Reox will trade in a "grey market" to be to be operated by two leading firms of Irish stockbrokers, but there are no plans to go for a full listing.

Dairygold chief executive, Jerry Henchy, said the group has up to €400m committed from its banks to fund its five-year plan and does not need to go to the markets to raise cash at this stage.

Of that, €300m will be used to fund the group's ambitious property developments and €100m will be assigned to the consumer food division for future acquisitions.

Unless there was a "compelling reason" for the group to seek a full listing, then Reox would trade on the gray market for the duration of the five-year plan.

Trading in the shares is due to start in June if shareholders approve the changes on May 17 at a Special General Meeting in Mallow.

Under the new deal farmer shareholders will retain ownership of the two separate businesses.

The proposals have the full backing of the Dairygold board. In practical terms Dairygold will transfer 75% of the ownership of Reox directly to members of the society, while the coop will hold on to 25% of the Reox equity.

This means 8,000 shareholders retain total control of the two entities, which will have separate management and which will report separately in the future.

No decision has been taken on what value will be placed initially on Reox shares.

When the co-op's shares last traded they were dealt at €2.34 and Mr Henchy said yesterday that was probably a 30% discount to the total net worth of the group, implying the shares are currently worth a little over €3.

Under the "spin out" of the shares, the estimated market value of Reox could be €190m while the coop business is worth a conservative €210m.

Overall the number of shares on issue in each company will be 92.5 million, implying the new consumer/property arm is worth roughly €2 per share with the slimmed-down coop valued somewhere over €1 per share.

Members will get shares in Reox in direct proportion to their existing shareholdings in the coop, on the basis of three shares in the new company for every four held in Dairygold.

For a farmer with 10,000 shares, that works out at 6,600 shares in the hived-off coop and 7,500 shares in the non-core business.

If the new plan is backed by farmers May 28 will see the end of Dairygold in its present form.