Will Kerry Co-op cash out?

Under the guidance of Jim Woulfe, a deal has been agreed between Kerry Group and Kerry Co-op to allow the Kerry Group’s Irish dairy-processing assets to be purchased by the co-op through a mix of share sales and debt. The intention is to use the entire 11 per cent Kerry Group share portfolio, which Kerry Co-op retains, to part-purchase the dairy assets and transfer a large proportion of the plc shares to the co-op members. A 66 per cent majority of co-op shareholders present and voting at a special general meeting (SGM) on December 16 will be required to get the deal over the line. If carried, Kerry Co-op will eventually become sole owner of the €500m Kerry Dairy Ireland. It is a complex agreement encompassing the exchange of co-op shares for Kerry Plc shares at a rate of 6.25 shares per co-op share. Ultimately, €250m of the value released would contribute to the dairy assets’ purchase price with the remaining €1.4bn going directly to co-op shareholders. The purchase price of €500m would also be part-financed through bank borrowing and a loan from Kerry Group, both to be paid back through a one cent per litre, five-year contribution from milk suppliers. The contentious ‘leading price’ commitment made by Kerry Group to its suppliers is proposed to be resolved through a €50m Kerry Group-financed fund, delivering a 5.4 cent per litre payment to suppliers, amounting to 81 per cent of the disputed monies suppliers claim they are owed. An 81 per cent return from any arbitration would be generally regarded as a positive outcome. There is a lot to be considered. Full ownership of milk-processing assets by Kerry Co-op, allied to a final spin-out for co-op shareholders of theoretically valuable co-op shares into tangible, tradeable Plc shares should be enough to deliver the two-thirds majority necessary to get the deal over the line.