KERRY Co op is to reduce its stake in Kerry Group from 52 per cent to 39 per cent in a move that will see almost £130 million worth of plc shares transferred directly from the co op to its 6,000 shareholders.
The proposed restructuring is far more radical than had been expected. As well as transferring 21.37 million plc shares directly into co op shareholders hands, it will give Kerry Group more flexibility when it comes to funding future acquisitions.
The proposals were greeted enthusiastically by a market starved of Kerry shares. The shares dealt up 10p to 610p and were well bid at that level. At 610p, Kerry is worth a fraction short of £1 billion and even another on the share price would see Kerry - which 20 years ago was nothing more than a collection of small co ops - top that mark.
Kerry has said that it may reduce the co op stake below 39 per cent through further share exchanges or raising additional equity, but that the co op stake in the plc will not fall below 20 per cent without a further rule change. Kerry's chief executive, Mr Denis Brosnan, has stated on a number of occasions that he would like to see a large block of plc shares held within the county, but it had been thought before that the new floor for the co op might be 39 per cent or higher.
Most of Kerry's recent acquisitions have been funded through cash, with the co op's 151 per cent rule limiting the amount of equity the plc could raise. It is understood that Kerry looked at potential food ingredients acquisitions in recent months, but decided not to proceed because of the inability to use equity to fund acquisitions. When Kerry paid over £250 million in 1994 for DCA, only £25 million was raised in equity with the vast bulk of the purchase price coming through debt.
The increased freedom that the new structure gives Kerry will mean that the group could raise over £800 million in new equity at current prices before going near the proposed new 20 per cent floor on the co op shareholding. Renewed acquisition activity is expected once the new structure is in place later this year.
The proposed rule changes will require 75 per cent votes at two special general meeting of Co op shareholders. These are expected to be held during the summer after a series of advisory meetings, but there seems little doubt that the rule changes will be approved.
Mr Brosnan and the finance director, Mr Hugh Friel, are currently doing the rounds of the advisory meetings ahead of the two special general meetings. The response from co op shareholders at these meetings has so far been very positive, sources close to the co op said.
If the rule changes are approved, then later this year Kerry Co op will transfer a quarter of its plc holding directly to co op shareholders. This will mean that 1.96 million co op shares will be converted into 21.37 million plc shares worth £130 million at the current price of 610p. The 6,000 co op shareholders will receive an of £21,600 worth of plc shares.
Kerry Co op shareholders individually hold about 10 per cent of the plc shares and this proposed transfer would increase the coop shareholders direct stake in the plc to around 23 per cent.
Market sources believe that there will be little flow of shares back onto the market after the transfer and that any Kerry shares sold by the co op shareholders will be quickly picked up by institutional shareholders, who are underweight in the stock. The improved liquidity should also make Kerry shares more attractive to overseas institutions who want liquidity in their investments.
As well as ceding control of the plc, Kerry Co op representation on the plc board wills fall from 15 to the vacancies filled "by six people whose expertise is of major value to the plc", the information document circulated to co op shareholders states.
In his circular, Mr Brosnan says no decision has yet been taken on whether the assets of Kerry Agribusiness - which owns the creameries, Al stations, feed mills and transport - should be owned directly by Kerry Co op if the decision is made to take its stake in the plc below 51 per cent. This is seen as a move to reassure milk suppliers that the assets employed in their part of the business will remain within their control.
The move by Kerry follows a decision last week by IAWS to carry out similar restructuring which will see the Irish Agricultural Wholesale Society (the co op) stake in IAWS fall from 55 per cent to 45 per cent through a share exchange.
