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the performance of its high-fl ying sports nutrition division.
The result has been a fall in share value to the lowest level
since 2015.
A slow turnaround
It is not clear whether the poorer than anticipated
performance of Glanbia's sports nutrition business can
be fully reversed. The company is facing some strong
headwinds as competitors develop low-cost, on-
line sales models, allowing them to undercut Glanbia
products. In addition, there are international tari and
trading issues impeding Glanbia's e orts to drive sales
of its performance nutrition products in new markets. In
fairness, Glanbia did identify the on-line threat and has
been developing strategies to compete in the space.
Clearly these strategies have yet to deliver fully. Recent
acquisitions by Glanbia, including Slimfast and Watson,
have helped to arrest profi t declines, with the purchase
of the previously lossmaking SlimFast looking like a
winner at the moment. Acquisitions do come at a
cost, however, and between them, SlimFast and
Watson have almost doubled Glanbia's debt
load. Debt peaked at over 800 million at the
end of last year. That had reduced somewhat
during 2019 as outlined in Glanbia's half year
results. Falls in revenues and profi ts impact
on cashfl ow reducing wriggle room to grow
by acquisition. That said, Glanbia is still
conservatively borrowed by industry norms
and well below its borrowing limits.
At least one major fi nancial analyst
is now suggesting that Glanbia is
seriously undervalued. Graham
Hunt of Morgan Stanley has set a
`buy' recommendation on Glanbia
shares with an upside value of
14.50 per share predicted by the
early months of 2020. That would
be good news for the thousands
of Glanbia milk suppliers who held onto their spin-out
shares in recent years.
Kerry on the cusp
Meanwhile, Kerry plc may be about to engage in a truly
transformative merger that would e ectively double the
value of the company. Kerry has been linked with the
nutrition division of US-based DuPont. A complex, tax-
e cient merger strategy between Kerry and the DuPont
division would create an entity with over 12 billion in
revenues. Such a merger would come at a hefty cost and
while Kerry has a large borrowing capacity, the likelihood
is that there would be a sizeable share o ering involved
in a deal with consequent implications for the current
share value of Kerry, already somewhat overheated
with the speculation around the potential merger with
the DuPont nutrition division. Any cash call on Kerry's
shareholders would probably be greeted enthusiastically.
Kerry management has delivered in the past with
transformative acquisitions and investors would
be confi dent of the same success in the future.
There is the added reality that potentially
lucrative and value-for-money investments
in the food and nutrition space are di cult
to source with many shares overvalued. Add
in the fact that, with bank interest non-
existent, there is a lot of money looking for
a profi table home and the fi nancing aspect
of a merger between Kerry and the
DuPont spin-o should not be the
deciding factor in concluding a
deal. Long term wealth creation,
added to scale, synergies and
future profi tability should be the
critical factors. If a merger does
happen, then Kerry would,
overnight, catapult into the top
tier of international nutrition
and fl avour companies.