February 24, 2017

Glanbia announced that it is launching Glanbia Ireland – a new Irish joint venture that will encompass three of its spun-off businesses – cheese and dairy ingredients, consumer foods, and agribusiness. Under the agreed-to terms for the formation of the venture, Glanbia will sell a 60 percent stake in Dairy Ireland to Glanbia Co-op for €112 million (US$118.6 million) – in effect giving the co-op’s farmer shareholders majority control of the country’s largest milk processor.

Currently, Dairy Ireland is a wholly-owned segment of Glanbia plc, accounting for 10.1 percent of Glanbia’s wholly owned EBITDA, posting revenue of €616.2 million (US$652.46 million) last year. Its two main segments include Glanbia Consumer Foods Ireland, which is the leading supplier of branded consumer dairy products on the Irish market, and exporter of long-life dairy products, and Glanbia Agribusiness, which supplies inputs to Ireland’s agricultural producers, and is the leading purchaser and processor of grain and top manufacturer of branded animal feed in the country.

To fund the deal, the Irish Times reports that the co-op has announced in a separate statement that it intends to raise more than €155 million (US$164 million) through the sale of 8.9 million shares at the current stock price. From these funds, it will earmark €40 million (US$42.3 million) to support its members.

This scaled-down deal echoes a previous attempt by Glanbia in 2010 to sell the entire dairy business to the co-op’s farmer shareholders, who voted the deal down at the time. However, the contributing factors surrounding this re-configured deal point to a more favorable response.

Talbot stresses that the strategic move to launch Glanbia Ireland will go far in easing these tensions.

“The creation of Glanbia Ireland makes strategic sense for the shareholders of both Glanbia Co-op and Glanbia plc,” said Talbot. “It brings together in a single structure, the ownership, operations, and objectives of Glanbia’s Irish dairy and agri-businesses.”

“Our members have expressed the ambition to expand their milk supply by 30 percent 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.”

Like Kerry Foods, Glanbia is one of Ireland’s leading food and ag companies that has its roots in the country’s co-operatives, according to the Financial Times. Formed in 1997 through the merging of Avonmore and Waterford milk co-ops, Glanbia’s structure has created a structure that inherently creates friction between the co-op, which has a primary goal of supporting prices for its members against the public company, which is targeting maximum profits.

If the deal is approved by a simple majority shareholder vote, and is completed as expected in mid-2017, Glanbia Ireland will establish a single platform for strategic investment through an investment program of between €250 million and €300 million (US$265 million and US$318 million) between 2017 and 2020, earmarked for the support of Glanbia’s milk suppliers, and to fund opportunities to pursue value addition.

This restructuring by Glanbia and the associated strategic moves align with Ireland’s plan to target a 50 percent increase over its 2009 dairy output by 2020, according to Dairy Global. Since the elimination of the EU’s dairy quota system in 2015, European dairy producing countries have been positioning themselves to expand production and gain market share, and Ireland’s atypical grass-based, low-cost production system, along with the country’s governmental support structures, gives Ireland, and Glanbia, a strategic advantage over rival producers.

Meanwhile, Glanbia will remain focused on its global nutrition platforms – Glanbia Performance Nutrition, Glanbia Nutritionals, and their strategic partnerships. Earlier this month, Glanbia announced two acquisitions in the nutrition space for a total consideration of €181 million (US$192.5 million) – U.S.-based Amazing Grass: a producer of cereal grasses and alfalfa used to make its portfolio of plant-based, organic and non-GMO “Greens” and “SuperFood” product lines; and Body & Fit, a leader in the direct to consumer online branded performance nutrition space based in the Netherlands.

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com