Glanbia Co-operative Society (“Glanbia Co-op”) has announced that it has signed a non-binding agreement with Glanbia plc to establish a new joint venture to be known as Glanbia Ireland.
As part of the agreement, Glanbia Co-op proposes to pay €112 million to acquire a 60% shareholding in the plc’s Dairy Ireland division, which consists of Glanbia Consumer Products and Glanbia Agribusiness.
Glanbia Co-op and Glanbia plc have agreed to form a new entity, Glanbia Ireland, combining Glanbia Ingredients Ireland, Glanbia Consumer Products and Glanbia Agribusiness, as a joint venture 60% owned by Glanbia Co-op and 40% owned by Glanbia plc. This builds on the successful Glanbia Ingredients Ireland (GII) joint venture established in 2012.
Glanbia Co-op has also announced proposals to distribute by way of “Spin-out” 5.9 million shares in Glanbia plc to all members of the Co-op and to create a €40 million Member Support Fund. The value of the share “Spin-out” is an estimated €100 million based on the Glanbia plc closing share price of €17.13 on Friday 17th February 2017.
The chairman of Glanbia Co-op Henry Corbally said: “The proposed creation of Glanbia Ireland is an exciting development for Glanbia farmers. It brings the strong portfolio of Glanbia’s Irish dairy and agribusiness assets into majority co-op ownership while building on the strong partnership with Glanbia plc. If our members approve these proposals, we will have two very strong value creating engines for our members, Glanbia Ireland and Glanbia plc. We will be the majority shareholder in a vibrant, ambitious Glanbia Ireland while also remaining the largest shareholder in Glanbia plc, with a 31.5% shareholding.
“Our members have expressed the ambition to expand their milk supply by 30% between now and 2020; the strong cash flow generation of the enlarged Glanbia Ireland business will allow it to fund the required processing capacity expansion without the requirement for supplier contributions in the next growth phase.
“Members value a strong co-op with commercially strong investments and the financial capacity to support its members in challenging periods,” Henry Corbally said.
Commenting Siobhan Talbot, group managing Director of Glanbia, said: “The creation of Glanbia Ireland makes strategic sense for shareholders of both Glanbia Co-op and Glanbia plc.
“It brings together in a single structure the ownership, operations and objectives of Glanbia’s Irish dairy and agri-businesses. 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.
“Glanbia plc will continue to focus on its global nutrition strategy through the platforms of Glanbia Performance Nutrition (GPN), Glanbia Nutritionals (GN) and Strategic Joint Ventures for the benefit of all shareholders.”
The strategic rationale for the creation of Glanbia Ireland includes:
* Building on the successful partnership between Glanbia Co-op and Glanbia plc since the creation of the Glanbia Ingredients Ireland (GII) joint venture in 2012;
* Integration of three strong, well-invested Irish based businesses to create value for all stakeholders;
* Maximising the opportunities created by the forecast 30% growth in milk supply by Glanbia’s 4,500 Irish milk suppliers;
* Creating one platform for strategic investment. There are currently plans for a strategic investment programme in Glanbia Ireland of between €250 million to €300 million to 2020. This investment programme will increase processing capacity to support the stated growth ambitions of Glanbia milk suppliers and optimise value adding opportunities. The financing of the investment will largely be sourced from dedicated bank facilities in Glanbia Ireland.
The Glanbia Ireland joint venture will be an enterprise of scale, with a 2.4 billion litre milk pool, revenue of €1.5 billion, 11 processing plants and over 1,800 employees. It will be a growing, ambitious, integrated business with a diversified portfolio of dairy ingredients, consumer brands and agri-inputs.
Should the proposed transaction complete, Jim Bergin, who is currently the CEO of Glanbia Ingredients Ireland, will be the CEO of Glanbia Ireland.
Profit Retention Policy
The new Glanbia Ireland organisation will, from 2018, have a minimum annual profit retention target of Profit After Tax (PAT) of 3.2% of net revenues, which will increase over time dependent on future value adding investments.
This profit retention model provides increased flexibility to support farmers in times of market weakness. In addition, the first €5 million generated in any one year above the minimum profit target will be set aside in a Volatility Fund with the timing and nature of payments from the Fund at the discretion of the board of Glanbia Ireland.
Glanbia Ireland will have a target of paying 50% of all profits after tax to both shareholders (Co-op and PLC) each year. It is proposed that 100% of Co-op dividends from Glanbia Ireland will be ring fenced for active farmers.
Details of Dairy Ireland (Glanbia Consumer Products & Agribusiness) and related associates
In 2016 the Dairy Ireland division of Glanbia plc - Glanbia Agribusiness and Glanbia Consumer Products - had revenue of €616m and earnings before interest, tax and amortisation (EBITA) of €30.7m. The division has 1,100 employees.
Glanbia Consumer Products is the leading supplier of branded consumer dairy products to the Irish market, as well as an exporter of long-life dairy products. Glanbia Agribusiness supplies inputs to the Irish agriculture sector and is the leading purchaser and processor of grain and the leading manufacturer of branded animal feed in Ireland. Dairy Ireland also has holdings in a number of associates involved in the primary manufacture and distribution of farm inputs.
Spin-out of Glanbia plc shares to members
The board of the co-op proposes to transfer, via Share Spin Out, 2% of Glanbia plc issued share capital (approx 5.9 million Glanbia plc shares), to all existing members of the society. Based on last Friday’s Glanbia plc closing price of €17.13, this would be worth approximately €100 million, or €6,637 for a member with the average shareholding. For active dairy farmer members, the average value of the spin-out would be €10,791.
Member Support Fund
Subject to member approval, the board of Glanbia Co-op proposes to allocate €40 million of its resources to a Member Support Fund. This will be 50% funded through the sale of Glanbia plc shares with the balance from Co-op resources.
Any payments made from the fund will be in the proportion of 75% patronage to active members and 25% special dividend to all members, with the nature and timing of any payments at the discretion of the Glanbia Co-op board.
Glanbia Co-op has agreed to pay €112 million for a 60% interest in Dairy Ireland (total equity value of €186.6m). Working capital at completion will be purchased by Glanbia Ireland from Glanbia plc.
If the proposed transaction is approved by members, Glanbia Co-op will fund the acquisition of 60% of Dairy Ireland and part fund the €40m Member Support Fund through the sale of c.8.9 million Glanbia plc shares (equal to 3% of the issued share capital of the plc).
Approvals and conditionality
These proposals are subject to the successful conclusion of contract negotiations and the relevant shareholder approvals within both Glanbia Co-op and Glanbia plc.
Voting on this Joint Venture proposal and the proposed rule changes will be held at a Special General Meeting (SGM) of Glanbia Co-operative Society.
The co-op board will seek the approval of eligible members present by a simple majority for the proposal to create Glanbia Ireland. If the necessary approvals for the creation of Glanbia Ireland are secured, the transaction is expected to be completed by 30 June.
If this initial proposal is approved by members, Glanbia Co-op will also hold a separate vote on related proposals which will require not less than a two thirds majority vote of eligible co-op members present, including two-thirds of members classified as active milk suppliers. Those proposals are:
* The sale of up to 3% of the issued share capital in Glanbia plc to finance the proposed transaction and part finance a proposed Member Support Fund;
* The spin out of 2% of the issued shares of Glanbia plc currently held by Glanbia Co-op directly to its members on a pro rata basis based upon their individual holdings in the Co-op;
* A rule change allowing the Board of Glanbia Co-op the discretion to further reduce the co-op’s shareholding in Glanbia plc to 28%, as well as requiring further member approval for any future proposal to reduce the co-op’s shareholding in Glanbia plc below 28%.
The proposal to create the Member Support Fund, which is linked to all of the above proposals, will require the approval of eligible members present by a simple majority.
The co-op holds 36.5% of the issued shares in Glanbia plc. If all of the proposals above are approved the co-op would own 31.5% of the issued share capital in Glanbia plc.
If all of the proposals are approved there will be a further reduction of Glanbia co-op’s representation on the Glanbia plc board by one director in 2022 taking the co-op’s total representation on the Glanbia plc board to six directors in 2022.
All of these proposals have the unanimous support of the board of Glanbia Co-operative Society, who recommend them to members for approval.
The Proposed Transaction will also be subject to approval by Glanbia plc’s shareholders via an extraordinary general meeting (EGM).