GLANBIA’S SHARE price soared by more than 8 per cent yesterday on the news that the food group has conditionally agreed to sell its Irish dairy and agri business to the Glanbia Co-operative Society for a possible €343 million.
The board of the co-op intends to fund the acquisition through the disposal of 102 million shares in Glanbia, which would reduce its stake in the company from almost 55 per cent to about 20 per cent.
The consideration paid for the business will depend on the price achieved when these shares are placed in the market, and could range from €300 million to the €340 million.
One Dublin stockbroker warned that the “very enthusiastic” response from investors yesterday could jeopardise the deal, which has yet to be accepted by the co-op’s farmer members.
“The higher the [Glanbia share] price goes, the more risk it creates that the farmers won’t accept the deal,” he said, explaining that the members may be more reluctant to relinquish shares that are rapidly rising in value.
However, under the terms of the proposed deal, Glanbia and the co-op would benefit equally from any “share price upside”.
The co-op board has “sweetened” the deal for its members by proposing to transfer half of the 20 per cent residual holding in Glanbia to members following the transaction. Based on last Friday’s share price of €3.10, this would be worth €7,357 to a member owning 4,000 shares in the co-op.
The deal is expected to be completed by June 15th. However, 75 per cent of co-op members attending two meetings in May must vote in favour of the transaction.
Majority approval will also be required from Glanbia’s shareholders at an extraordinary general meeting on May 25th.
The three business units that would be acquired by the co-op under the proposed deal are the dairy ingredients, consumer products and agribusiness divisions.
According to the co-op board, the lifting of EU milk quotas combined with growing global demand for dairy products has created opportunities for growth in Irish milk supply.
Co-op chairman Liam Herlihy said the current plc structure limited the business’s ability to pursue these opportunities. “A plc must pursue growth in areas where it will get the highest return, which may be overseas,” he said. “We want to develop the Irish market.”
The business will be “managed for the benefit of society members”, he said, adding that this might involve “supporting milk prices”.
Glanbia will remain headquartered in Ireland if the disposal goes ahead.
One of the key advantages of the deal from Glanbia’s perspective is that it will reduce its debt levels significantly, leaving it free to develop in international markets.
