The Board of Kerry Co-operative Creameries has reached a deal with Kerry Group to buy its Consumer Foods Products and Dairy Ingredients business – Kerry Dairy Ireland – in two stages for up to €500m.

70% of the business will be bought before the end of January 2025 and 30% in the period up to 2035.

As a current business division of Kerry Group, Kerry Dairy Ireland is a dairy and ingredients business and processes over 1.1 billion litres of milk annually from 2,740 family farms across Munster.

Employing over 1,500 staff, and exporting to over 58 countries worldwide, the business had sales of €1.3 billion in 2023.

Kerry Dairy Ireland has six dairy manufacturing facilities across Ireland and the UK and the business has a strong portfolio of dairy food brands, especially in the snacking brands category including Cheestrings, Dairygold, EasiSingles, LowLow, Kerrymaid and Charleville.

Kerry Dairy Ireland also operates a portfolio of 31 agri-services stores under the brand name “Farm & Home Store”, across Kerry, Limerick, Clare and north Cork, as well as a feed mill in Farranfore.

After talks between the two parties, which took into account historical performance, the market outlook, the business forecasts and the wider strategic benefits available to the Co-op, an agreement has been reached which sets out a €350m consideration for its 70% interest in Kerry Dairy Ireland based on a total Enterprise Value of €500m.

The Co-op will have a call option to acquire the final 30% stake at any time from completion of the 70% acquisition until 31 July 2030.

Kerry Group said the proposed deal represents an important step in its evolution to becoming a fully dedicated global taste and nutrition solutions company.

“This follows the significant portfolio development over recent years including the build out of its proactive health, food protection and preservation, and enzymes platforms, while also divesting of the Consumer Foods Meats & Meals business and the Sweet Ingredients portfolio,” it said.

“The proposed transaction will result in greater portfolio clarity, a more simplified business structure, and increased capital deployment focus across Kerry’s core taste and nutrition business, while further strengthening Kerry’s ability to execute against its strategic priorities,” it added.

It also said today’s proposed deal will have a positive impact on Kerry’s overall financial metrics, with an enhanced revenue volume growth profile, combined with a step change in Kerry’s EBITDA margin profile and an improved overall sustainability profile.

Edmond Scanlon, Kerry’s chief executive, said the proposed transaction represents a significant step in Kerry’s 50 year journey.

“Our strategy of continuous business development and portfolio evolution aligned to our customers has been a key underpin of Kerry’s success over the years,” he said.

“The proposed transaction will result in a global leader in taste & nutrition solutions and an end-to-end industry leader in dairy. Both businesses are perfectly positioned for success, thanks to the dedication and extraordinary contribution of our people over the years,” he said.

“On completion, Kerry will become a pure play global business to business taste & nutrition company, with sustainable nutrition at its core, while also supporting our financial objectives of continued market outperformance, strong margin progression, and delivering greater returns for our shareholders,” he added.

James Tangney, Chairman of Kerry Co-Op, said he was very pleased to have reached an agreement that will ultimately deliver full ownership of one of the leading dairy businesses in the country, while also, in effect, releasing 85% of Kerry Co-Op’s Kerry Group shares into the hands of its members to be retained or sold by each of them at a time of their choosing.

“Kerry Co-op and Kerry Group have a shared heritage that has helped create value, pioneer change and shape the dairy industry, but we have come to a fork in the road where both organisations require the freedom to grow in a manner best suited to the needs of their stakeholders,” Mr Tangney said.

“As direct shareholders in the plc, members will continue to gain from the group’s progress and, in tandem, the Co-op will focus on ensuring Kerry Dairy Ireland becomes a platform for future growth. It will also give farmers a greater voice in a business that is critical to their farming futures,” he said.

“The proposed transaction is transformational in nature and has been approved by the Board,” he said.

“We believe the proposal being put to members will satisfy the diverse aspirations of our shareholder base and believe it offers the best opportunity for Kerry Co-op to move forward in a new direction with confidence,” he added.

An EGM is expected to take place on December 19 for Kerry shareholders to vote on the proposed transaction, while the Co-Op is planning a Special General Meeting in Killarney on December 16.

To facilitate the proposed deal, Kerry Co-op is recommending to its members a share exchange whereby all Co-op members will be given new Kerry Group shares in exchange for 85% of their Co-op shareholdings; at a rate of 6.25 Kerry Group shares per Co-op share currently held.

It said that for Irish resident individuals, there should be no upfront tax charge as a consequence of this transaction, and any tax on capital gains should only become payable in the event of a subsequent sale or transfer of the Kerry Group shares concerned.

Acquiring Kerry Dairy Ireland will give the Co-op ownership and control over the region’s milk processing assets, together with valuable consumer brands, which are critical to securing the future of dairy farming families in the region, the Co-Op added.

For the fiscal year 2023, Kerry Dairy Ireland generated revenue of €1.283 billion and EBITDA of €53.4m.

EY Ireland provided financial advisory, financial due diligence and debt advisory services to Kerry Co-Operative Creameries in reaching today’s proposed deal.

Simon MacAllister, Strategy and Transactions Partner at EY Ireland, said the proposed deal is one of the most important transactions in Ireland’s agri-food sector in recent years.

“This transaction returns dairy processing assets to farmer control and repositions Kerry Group as a global provider of taste and nutrition solutions,” he said.

“The proposed transaction values the business at €500m, and as part of the transaction, Kerry Co-op will transfer shares in Kerry Group worth about €1.4 billion to members,” he added.

Meanwhile, McCann FitzGerald acted as legal advisers to Kerry Co-Op on the deal.

Kerry Group shares moved higher in Dublin trade today.

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