Glanbia revives plans to sell control of Dairy Ireland to farmers co-op

Glanbia plc has unveiled plans to sell a controlling stake in its Irish dairy division to its largest shareholder, the Glanbia Co-operative Society, in a deal that will bring in about €200 million in cash for the listed company.

The deal, subject to approval by shareholders and members on both sides, represents a scaled-back version of Glanbia plc’s failed attempt in 2010 to sell the dairy business entirely to the farmers’ co-op. It would also result in the co-op cutting its stake in Glanbia by 5 percentage points to 31.5 per cent as it sells and distributes a combined €255 million of stock in the group.

The announcement came on Tuesday morning as the food group reported better-than-expected earnings for 2016, in which its adjusted earnings per share rose 11.2 per cent to 87.66c, against its own 8-10 per cent earnings per share growth target. Glanbia expects earnings per share to grow a further 7-10 per cent this year, excluding currency movements and the effect of asset purchases and sales.

Under the terms of the deal, Glanbia will hive off its Dairy Ireland consumer foods and agribusiness units into a separate company called Glanbia Ireland, in which the co-op will buy a 60 per cent stake for €112 million. Glanbia plc will retain the remaining 40 per cent. The new company will also contain the dairy ingredients business that Glanbia spun off five years ago in a similarly structured joint venture with the co-op.

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Glanbia Ireland will then raise debt from banks to return the business’ approximate €90 millon of working capital to the plc.

The co-op said in a separate statement that it plans to sell 8.9 million shares, which would raise over €155 million based on the current stock price, to fund the new arrangement and setting aside of €40 milion for a fund to support its members. It also proposes distributing a further 5.9 million of shares, worth more than €100 million, to its members.

The attempt in 2010 by Glanbia plc to sell full ownership of its Irish dairy business to the co-op failed as the latter couldn’t secure the necessary 75 per cent support needed from its voting members. At the time, the co-op owned about 56 per cent of the plc. The stake has since fallen to 36.5 per cent.

Strategic move

“The creation of Glanbia Ireland makes strategic sense for the shareholders of both Glanbia Co-op and Glanbia plc,” said Siobhán Talbot, the plc’s managing director. “It brings together in a single structure the ownership, operations and objectives of Glanbia’s Irish dairy and agribusinesses. 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.”

Subject to the deal going through, Glanbia Ireland will be set up with an investment programme of between €250 million and €300 million between 2017 and 2020, which will be largely funded by bank facilities. Jim Bergin, chief executive of Glanbia Ingredients, is being lined up to become boss of Glanbia Ireland.

Meanwhile, Glanbia 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, Ms Talbot said.

Earnings before interest, tax and amortisation (ebita) in Glanbia Performance Nutrition, its biggest division, which targets the sports and healthfood industry with protein powders, shakes and bars, jumped 20 per cent last year to €162.6 million, helped by 2015 acquisition of protein bar maker ThinkThin.

The Glanbia Nutritionals division, which includes the group’s US cheddar cheese and value-added dairy ingredients business, saw its ebita increase by 4.9 per cent on the year to €111.8 million.