Dairygold restructuring to increase co-op's value

Dairygold yesterday revealed its long-awaited restructuring plans, which will see the co-op split into two separate entities, a move people close to the group believe will significantly raise its value.

The Cork-based co-op's 8,000 members had already approved the outline of the plan under which three parts of the business - consumer foods, home hardware and property - will be placed in a new subsidiary Reox Holding, known as Red Box. The core milk processing and agri-trading business will continue to operate as Dairygold Co-op, under the name Green Box.

Shares in both entities will be divided among existing stockholders, who will hold 75 per cent of Red Box's equity - allocated on the basis of three shares in Red Box for every four shares currently held in Dairygold. Green Box will hold a 25 per cent stake in Red Box.

The co-op's shares, which can be traded on an unofficial grey market, were worth €2.34 prior to this announcement, giving the combined group a value of about €220 million. It's unclear what affect the restructuring will have on the current price, which observers believe significantly undervalues the group. Indeed, Red Box alone may be worth up to €200 million, observers said.

Chief executive Jerry Henchy said the decision to spin off the non-core assets follows an acknowledgement that it has become a business of two parts. "Now is the right time to put things in their appropriate boxes," he said. "This will give us better access to funds to grow the non-core parts of the business."

Currently, the growth of the consumer and property units is restricted because of the co-op. It's believed separating the businesses will give it greater flexibility to borrow money.

Mr Henchy said the group had decided against an initial public offering because it would significantly dilute the potential value for existing shareholders. For now, both sets of shares will be traded on the grey market, but in time may migrate to a public exchange.

Dairygold has passed through a radical restructuring over the past few years, which saw it exit a number of loss-making business and shed more than 1,000 staff. As a result, it has boosted profits at a time when the farming industry is under increasing cost pressure. The co-op is due to release its 2005 results in June, but Mr Henchy said yesterday it had put in a solid performance.