Kerry Co-op, presently a holding company for 12% of shares in the group, is being offered a joint venture in three dairy processing plants, an animal feeds business and some dairy brands.
Turnover for that division is €1.2 billion annually, the milk pool about 1.2b litres and net profit some €80-100 million, although that figure is not published in the Kerry Group accounts.
Kerry PLC’s revenue was €7.2b in 2019 (about NZ$12.2b) and its trading profit €900m. The 2020 results are due out in a few days.
It is described as a taste, nutrition, food and ingredients company, with 26,000 employees in 150 locations in the Americas, Europe, Asia, the Pacific, the Middle East and Africa.
The indicative price for the transaction is €480m, which values the whole Kerry dairy business at €800m.
It would possibly be funded from co-op reserve funds, new debt, a possible share offer and/or sale of shares in Kerry PLC.
Should the proposal go ahead, dairy farmers in Kerry, one of the least-populated and most-rural counties in Ireland, would come a full circle in ownership of processing facilities.
In the mid-1980s, the newly amalgamated Kerry Co-op went public and began a diversification and worldwide expansion that resulted in the present-day market capitalisation over €20b.
Therefore, the dairy assets in the home county and related dairy brands are about one-twentieth of Kerry Group’s current value.
The co-op share price is €660, six times that of the group’s €115, and its 12% stake in the PLC is valued at €2.4b.
Kerry Co-operative Creameries has existing farmer-shareholders, former farmers, dry shareholders and some investors who bought shares on the grey market.
It also has 23 directors representing small wards, turnover of €17m in 2019 and a profit of €50m due to gains on investment.
It is thought that the buy-back proposal would include an exit offer to non-farming shareholders in the co-op to transfer their holdings to Kerry Group PLC.
However, there are taxation implications for the wealthy.
The mooted change in processing ownership and control dates back to the abolition of the European Union dairy quota system in 2015 and the expansion of Irish dairying that followed.
Kerry Group offered milk supply contracts with “the leading milk price” each year.
But farmers in the co-op thought they weren’t getting paid the best milk price and took the group to arbitration.
Although the arbitrator found in favour of the farmers, no remedy or future formula for a milk price was laid out.
In early 2020, Kerry made a 3c/litre retrospective goodwill payment to all farmer-suppliers covering milk supply for the previous five years.
Kerry Group has now, in effect, said to farmers “if you want to invest, take back processing and control your own milk price,” here is a proposal to do so.
When Fonterra was still young, Kerry was promoted as an aspirational example for the unified New Zealand dairy industry.
Charismatic chief executive Denis Brosnan shared a platform with Fonterra’s first chief executive Craig Norgate at the 2001 IDF World Dairy Congress in Auckland.
Brosnan’s account of how Kerry had grown and how it was performing was eagerly received by NZ conference-goers, trade officials and the Fonterra founders.
But in 2007-8, when Henry van der Heyden’s board proposed a modified public listing to Fonterra farmers, they rejected the concept before a vote.
The directors withdrew the proposal when it became obvious that 75% farmer approval was not going to be achieved.
Trading Among Farmers to set a market share price and avoid redemption risk was eventually agreed in 2012 because it kept ownership and control in the hands of farmers, but the share price has since languished.
Now the capital structure of Fonterra is again being reviewed.
From the NZ perspective, farmers will understand why their Kerry counterparts want to regain some control over milk prices, which have been buoyant for five years since the EU quota abolition.
Irish farmers are fortunate that Kerry Co-op still has enough financial weight to make a move if the details can be agreed.
Kerry Group, for its part, wants to calm down its home-county milk supply, which represents the roots of the company.
A New Zealander of Dutch descent, Huey van Vliet, recently left Fonterra to join Kerry Group as a sales director in Europe in the agribusiness division.
He works remotely from the Netherlands, even more secluded because of covid-19 restrictions, and his products include butter, skim milk powder, casein, cheddar, sweet and acid whey powder.
During his orientation he read The Kerry Way, which traced the company from Brosnan’s rented caravan in a muddy field near Tralee in 1972 to the global force of today.
Brosnan retired in 2003 and is still consulted by Irish start-ups and agribusiness exporters.
“The Kerry story is very inspiring, and it is hard to compare to any other business,” Van Vliet said.
“It has been a combination of strong leadership with a very clear vision and in hindsight, it has certainly led them to a great deal of success.”
